CELEX: 62003CO0268
Language: en
Date: 2004-06-08 00:00:00
Title: Order of the Court (Second Chamber) of 8 June 2004. # Jean-Claude De Baeck v Kingdom of Belgium. # Reference for a preliminary ruling: Rechtbank van eerste aanleg te Antwerpen - Belgium. # Article 104(3) of the Rules of Procedure - Fiscal legislation - Taxation on income of natural persons - Assignment of a major holding in the capital of a resident company - Detailed rules governing charge to tax of resultant gain. # Case C-268/03.

Case C-268/03
      Jean-Claude De Baeck
      v
      Belgische Staat
      (Reference for a preliminary ruling from the Rechtbank van eerste aanleg te Antwerpen)
      (Article 104(3) of the Rules of Procedure – Fiscal legislation – Taxation on income of natural persons – Assignment of a major holding in the capital of a resident company – Detailed rules governing charge to tax of resultant gain)
      Summary of the Order
      Freedom of movement for persons – Freedom of establishment – Fiscal legislation – Income tax – Gains secured on the assignment
            for valuable consideration of shares or stock in companies established in the Member State of taxation not chargeable to tax
            – Not permissible – Restriction on the freedom of movement of capital where the assignee does not obtain sufficient influence
            in the company 
      (Arts 43 EC, 48 EC and 56 EC)
      Articles 43 EC and 48 EC preclude national legislation pursuant to which gains secured on the assignment for valuable consideration,
         otherwise than in the exercise of a business activity, of shares or stock in companies, associations, establishments or bodies,
         attract a charge to tax where the transfer is made to companies, associations, establishments or bodies established in another
         Member State, whereas, in the same circumstances, those gains are not chargeable to tax where that transfer is made to companies,
         associations, establishments or bodies established in the Member State concerned, provided that the shareholding transferred
         gives its holder definite influence over the company’s decisions and allows him to determine its activities.
      
      Article 56 EC precludes such national legislation, where the shareholding transferred is not of that kind.
      (see para. 28, operative part 1-2)

      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
            
            ORDER OF THE COURT (Second Chamber)8 June 2004(1)
            
            
         
            (Article 104(3) of the Rules of Procedure  –  Fiscal legislation  –  Taxation on income of natural persons  –  Assignment of a major holding in the capital of a resident company  –  Detailed rules governing charge to tax of resultant gain)
            
          In Case C-268/03,
          REFERENCE to the Court under Article 234 EC by the Rechtbank van eerste aanleg te Antwerpen (Belgium) for a preliminary ruling
         in the proceedings pending before that court between 
         
         
         
         Jean-Claude De Baeck
         
         and
         
         Belgische Staat,
         
         
          on the interpretation of Articles 43 EC, 46 EC, 48 EC, 56 EC and 58 CE,
         
         
         
         
         THE COURT (Second Chamber),
         
          composed of: C.W.A. Timmermans (Rapporteur), President of the Chamber,  C. Gulmann, J.-P. Puissochet, J.N. Cunha Rodrigues
         and N. Colneric, Judges,
         
          Advocate General: F.G. Jacobs,Registrar: R. Grass,
          after the referring court had been informed that the Court proposed to give its decision by reasoned order in accordance with
         Article 104(3) of its Rules of Procedure,after requesting the persons referred to in Article 23 of the Statute of the Court of Justice to submit any observations in
         that connection,after hearing the views of the Advocate General,
         makes the following
         
         
         Order
         1
            
          By a judgment of 13 June 2003, which was received at the Court on 19 June 2003, the Rechtbank van eerste aanleg te Antwerpen
         (Court of First Instance, Antwerp), referred to the Court for a preliminary ruling under Article 234 EC a question concerning
         the interpretation of Articles 43 EC, 46 EC, 48 EC, 56 EC and 58 EC.
         
         
         
         2
            
          That question was raised in the context of proceedings between Mr De Baeck and the Belgische Staat (Belgian State) concerning
         the charge to tax imposed on the gain in value secured on the sale by Mr De Baeck to a French company of shares in Belgian
         companies.
         
         
            
               National legislation
            
         
         3
            
          In the version in force at the material time for the purposes of the main proceedings, Article 67(8) of the Belgian Code on
         income tax of 26 February 1964, provided:
         ‘Miscellaneous income … is … the gain in value secured on the transfer for valuable consideration, otherwise than in the context
         of the exercise of a business activity referred to in Article 30, of shares or stock in companies, associations, establishments
         or bodies having their company seat, their main establishment or their centre of management or operations in Belgium, where
         the transferor or, if the shares were not obtained for valuable consideration, his predecessor in title,  at any time in the
         period of five years preceding the transfer alone or together with his spouse, descendants, ascendants, relatives in the second
         degree and those of his spouse, directly or indirectly held more than 25% of the rights in the company in which the shares
         or stock were transferred.’
         
         
         
         4
            
          Under Article 67ter of the Code:
         ‘The gains in value referred to in Article 67(8) shall not be chargeable to tax if they are secured on distribution of the
         assets of the company incorporating those holdings, or on the purchase by that company of its own shares, or on the transfer
         of shares or stock to a resident liable to personal tax or to a non-resident liable to tax as a person without a residence
         permit or to a taxpayer as mentioned in Articles 94(1) and 136.’
         
         Dispute in the main proceedings and the question referred for a preliminary ruling
         
         5
            
          The referring court states that, according to the tax authorities, Mr De Baeck, acting on his own behalf and for others, in
         1989 sold to a French company shares in Belgian companies belonging to the Antverpia group for an amount of BEF 1 705 000 000.
         
         
         
         6
            
          Since the shares were sold to a foreign undertaking and Mr De Baeck’s family held a major shareholding in the Belgian companies
         belonging to the Antverpia group, the tax authorities were of the view that the gain in value secured was chargeable to tax.
         
         
         
         7
            
          According to the referring court, under national legislation gains in value are not chargeable to tax if the shares or stock
         are assigned to Belgian companies, associations, establishments or bodies, although they are so chargeable if the shares or
         stock are assigned to foreign companies, associations, establishments or bodies.
         
         
         
         8
            
          That legislation thus provides for different treatment of gains in values of shares or stock depending on the place of establishment
         of the assigning company, association, establishment or body.
         
         
         
         9
            
          Since it had doubts as to the conformity with Community law of that legislation, the Rechtbank van eerste aanleg te  Antwerpen
         decided to stay the proceedings and to refer the following question to the Court for a preliminary ruling:
         ‘Do Articles 43 EC, 46 EC, 48 EC, 56 EC and 58 EC preclude Belgian legislation, namely Articles 67(8) and 67ter of the income
         tax code, in its 1964 version, pursuant to which gains in value secured on the transfer for valuable consideration, otherwise
         than in the context of the exercise of a business activity, of shares or stock in Belgian companies, associations, establishments
         or institutions, are liable to tax where the transfer is to a foreign company, association, establishment or institution,
         even though in the same circumstances those gains in value are not liable to tax where the transfer is to a Belgian company,
         association, establishment or institution?
         
         The question referredObservations submitted to the Court
         
         10
            
          Mr De Baeck proposes that the reply to the question referred should be in the affirmative. Referring, in particular, to the
         judgment of 21 November 2002 in Case C-436/00 X and Y [2002] ECR I-10829, he is of the view that a rule such as that at issue in the main proceedings constitutes a restriction
         on both freedom of establishment and the free movement of capital.
         
         
         
         11
            
          In fact such a rule would be likely to impede the taxpayer in the exercise of the right conferred on him by Article 43 EC
         to conduct his activities by means of a company in another Member State or to assign shares or stock to such a company and
         to deter residents of one Member State from contracting loans or making investments in other Member States. Mr De Baeck takes
         the view that those restrictions are unwarranted.
         
         
         
         12
            
          The Commission is also of the view that national legislation such as that at issue in the main proceedings is incompatible
         with Community law. Referring to the judgments in Case C-251/98 Baars [2000] ECR I-2787 and X and Y, cited above, it states that it is appropriate to distinguish between freedom of establishment and free movement of capital.
         
         
         
         13
            
          In its view, if Mr De Baeck’s holding confers on him definite influence over the company’s decisions and enables him to determine
         its activities, the question referred for a preliminary ruling must be analysed from the standpoint of freedom of establishment.
         If the converse is true, it must be analysed from the standpoint of the free movement of capital. It would be for the referring
         court to ascertain which of the two situations is actually applicable.
         
         
         
         14
            
          In regard to freedom of establishment, the Commission, referring to the X and Y judgment submits that the charge to tax at issue in the main proceedings is likely to have a dissuasive effect on the exercise
         by a company established in another Member State of the right conferred on it by Article 43 EC to conduct its activities in
         Belgium through the intermediary of a company. In fact it would be more advantageous to Mr De Baeck to sell his holding to
         a Belgian company because in that case he would not be liable to tax. Such unequal treatment constitutes a restriction on
         freedom of establishment.
         
         
         
         15
            
          In regard to free movement of capital the Commission, again referring to the X and Y judgment, observes that the national legislation at issue in the main proceedings is such as to deter persons liable to Belgian
         income tax from assigning shares to assignee companies established in other Member States. Moreover, that legislation also
         restricts the freedom of residents of other Member States from investing their capital in certain Belgian undertakings since
         those residents would have to persuade the Belgian vendor to choose them as purchasers, notwithstanding the charge to tax
         at issue. It thus constitutes a restriction on the free movement of capital within the meaning of Article 56 EC.
         
         
         
         16
            
          The Commission observes that the referring court mentions no matter capable of justifying the restrictions identified by it.
         Nor does it see what justification there could be for them.
         
         Court’s reply
         
         17
            
          Considering that the reply to the question referred may be clearly deduced from the case-law, the Court, in accordance with
         Article 104(3) of its Rules of Procedure, informed the referring court of its intention to give its decision by reasoned order
         and requested the persons referred to in Article 23 of the Statute of the Court of Justice to submit any observations in that
         connection.
         
         
         
         18
            
          Only Mr De Baeck responded to the Court’s request, stating that the X and Y case was not in his view identical but in some ways similar to the present case. However, he is relying on the assessment
         by the Court in order to determine whether in this case the reply may be deduced from that judgment. He believes that to be
         the case.
         
         
         
         19
            
          It has been consistently held that although direct taxation is a matter for the competence of the Member States, the latter
         must none the less exercise that competence in conformity with Community law (see, in particular, Case C-364/01 Barbier [2003] ECR I-0000, paragraph 56, and case-law cited).
         
         
         
         20
            
          At paragraph 36 of the judgment in X and Y the Court held that the refusal of a tax advantage, namely  the refusal to grant the transferor the benefit of a deferral
         of a charge to tax on gains made on shares transferred at undervalue, on the ground that the transferee company in which the
         taxpayer has a holding is established in another Member State, is likely to have a deterrent effect on the exercise by that
         taxpayer of the right conferred on him by Article 43 EC to pursue his activities in that other Member State through the intermediary
         of a company. 
         
         
         
         21
            
          The Court considered that such inequality of treatment constitutes a restriction on the freedom of establishment of nationals
         of the Member State concerned (and, moreover, on that of nationals of other Member States resident in that Member State),
         who have a holding in the capital of a company established in another Member State, provided that that holding gives them
         definite influence over the company’s decisions and allows them to determine its activities. It was for the referring court
         to ascertain whether that condition was fulfilled in the case in the main proceedings (X and Y, paragraph 37, and case-law cited). 
         
         
         
         22
            
          Moreover, if, on the basis of the matters established by the referring court, Article 43 EC does not apply in light of the
         inadequate degree of participation by the transferor in the transferee company having its establishment in another Member
         State, refusal of a tax advantage is liable to dissuade those liable to tax on gains from transferring shares at undervalue
         to transferee companies established in other Member States in which they directly or indirectly have a holding and, therefore,
         constitutes, for those taxpayers, a restriction on the free movement of capital within the meaning of Article 56 EC (X and Y, paragraph 70, and case-law cited). 
         
         
         
         23
            
          It is common ground, in the main proceedings, that the gains are not chargeable to tax if the shares or stock are assigned
         to Belgian companies, associations, establishments or bodies, although they are so chargeable if the shares or stock are assigned
         to companies, associations, establishments or bodies established in another Member State. 
         
         
         
         24
            
          However, the refusal of the tax advantage is in this case yet more pronounced than in the X and Y case in which that refusal was constituted by the withholding from the transferor of the benefit of a deferral of tax, with
         a consequential cash flow disadvantage for him (X and Y, paragraph 36). The effect of the national legislation at issue in the main proceedings is that the transferor who assigns
         his shares in a company established in another Member State suffers a charge to tax on the gains made which is not the case
         where the transferor assigns his shares to a Belgian company.
         
         
         
         25
            
          Thus it may clearly be deduced from the judgment in X and Y that the difference in treatment created by the national legislation at issue in the main proceedings to the detriment of
         the taxpayer who assigns his shares or stock to companies, associations, establishments or bodies established in another Member
         State constitutes a restriction on freedom of establishment. In fact, by making the assignment of the shares or stock at issue
         to assignees established in another Member State less attractive, the exercise by the latter of their right of establishment
         is liable to be restricted, provided that the shareholding transferred gives its holder definite influence over the company’s
         decisions and allows him to determine its activities. It is for the referring court to ascertain whether that condition is
         satisfied in the main proceedings.
         
         
         
         26
            
          If that is not the case, the difference of treatment created by the national legislation at issue in the main proceedings
         must be regarded as constituting a restriction on the freedom of movement of capital for the purposes of Article 56 EC, inasmuch
         as the transfer of the shares or stock at issue to an assignee established in another Member State is rendered less attractive.
         
         
         
         27
            
          Since the Court has been apprised of no factor capable of justifying the abovementioned restrictions, there is no need to
         examine whether they pursue a legitimate objective compatible with the EC Treaty and are justified on overriding general-interest
         grounds.
         
         
         
         28
            
          The reply to the question referred must therefore be that:
         
         
         
          
         –
            Articles 43 EC and 48 EC preclude national legislation, such as Articles 67(8) and 67 ter of the Belgian income tax code,
               in the version in force at the material time for the purposes of the main proceedings, pursuant to which gains secured on
               the assignment for valuable consideration, otherwise than in the exercise of a business activity, of shares or stock in companies,
               associations, establishments or bodies, attract a charge to tax where the transfer is made to companies, associations, establishments
               or bodies established in another Member State, whereas, in the same circumstances, those gains are not chargeable to tax where
               that transfer is made to Belgian companies, associations, establishments or bodies, provided that the shareholding transferred
               gives its holder definite influence over the company’s decisions and allows him to determine its activities;
            
         
         
         
         
          
         –
            Article 56 EC precludes national legislation, such as that mentioned above, where the shareholding transferred does not give
               its holder definite influence over the company’s decisions or allow him to determine its activities.
            
         
         
         
         
         Costs
         29
            
          The costs incurred by the Commission, which submitted observations to the Court, are not recoverable. Since these proceedings
         are, for the parties to the main proceedings, a step in the proceedings before the referring court, the decision on costs
         is a matter for that court.
         
         
         On those grounds,
         
         
         
            
            THE COURT (Second Chamber),
         
         
          in answer to the question submitted to it by the Rechtbank van eerste aanleg te Antwerpen by judgment of 13 June 2003, hereby
         rules:
         
            
            
             
               1.
                  Articles 43 EC and 48 EC preclude national legislation, such as Articles 67(8) and 67 ter of the Belgian income tax code,
                     in the version in force at the material time for the purposes of the main proceedings, pursuant to which gains secured on
                     the assignment for valuable consideration, otherwise than in the exercise of a business activity, of shares or stock in companies,
                     associations, establishments or bodies, attract a charge to tax where the transfer is made to companies, associations, establishments
                     or bodies established in another Member State, whereas, in the same circumstances, those gains are not chargeable to tax where
                     that transfer is made to Belgian companies, associations, establishments or bodies, provided that the shareholding transferred
                     gives its holder definite influence over the company’s decisions and allows him to determine its activities.
                  
               
            
            
            
             
               2.
                  Article 56 EC precludes national legislation, such as that mentioned above, where the shareholding transferred does not give
                     its holder definite influence over the company’s decisions or allow him to determine its activities.
                  
               
            
             Done in Luxembourg,  8 June 2004.
         
         
         
                  R. Grass
               
               
                  C.W.A. Timmermans
               
            
         
         
         
                  Registrar
               
               
                  President of the Second Chamber
               
            
      
      
          1 –
            
            Language of the case: Dutch.