Commission of the European Communities v Kingdom of Spain.
Date: 2003-05-13
25.  As regards the first plea of inadmissibility, it is sufficient to state that it is clear from the Court's case-law that the question whether a Member State has failed to fulfil its obligations must be determined by reference to the situation prevailing in the Member State at the end of the period laid down in the reasoned opinion and that the Court cannot take account of any subsequent changes (see,   inter alia  , Case C-174/01   Commission   v   Luxembourg   [2002] ECR I-11171, paragraph 18). Given that the reasoned opinion was dated 2 August 1999 and that there was a two-month period within which to comply with it, the fact that the regimes introduced by Royal Decrees Nos 40/1998 and 552/1998, as amended, expired on 17 February 2001 and 5 October 2000 respectively does not affect the question whether an infringement existed at the end of that period.
44.  The system of prior administrative approval can in any event be justified by overriding requirements of the general interest, which relate to strategically important interests and to the need to guarantee continuity in public services. References to that guarantee appear in each of the royal decrees at issue. It is the responsibility of the Member States to ensure security of supplies, economic and social stability and protection of consumers' interests.
52.  Although the Treaty does not define the terms   "movements of capital"   and   "payments"  , it is settled case-law that Directive 88/361, together with the nomenclature annexed to it, may be used for the purposes of defining what constitutes a capital movement (Case C-222/97   Trummer and Mayer   [1999] ECR I-1661, paragraphs 20 and 21).
53.  Points I and III in the nomenclature set out in Annex I to Directive 88/361, and the explanatory notes appearing in that annex, indicate that direct investment in the form of participation in an undertaking by means of a shareholding or the acquisition of securities on the capital market constitute capital movements for the purposes of Article 56 EC. The explanatory notes state that direct investment is characterised, in particular, by the possibility of participating effectively in the management of a company or in its control.
56.  That argument cannot be accepted. It is clear from paragraphs 44 and 40 of the judgments in   Commission   v   Portugal   and   Commission   v   France   respectively that the prohibition laid down in Article 56 EC goes beyond the mere elimination of unequal treatment, on grounds of nationality, as between operators on the financial markets.
60.  According to that judgment, the application to products from other Member States of national provisions restricting or prohibiting, within the Member State of importation, certain selling arrangements is not such as to hinder trade between Member States so long as, first, those provisions apply to all relevant traders operating within the national territory and, second, they affect in the same manner, in law and in fact, the marketing of domestic products and of those from other Member States. The reason is that the application of such provisions is not such as to prevent access by the latter to the market of the Member State of importation or to impede such access more than it impedes access by domestic products (Case C-384/93   Alpine Investments   [1995] ECR I-1141, paragraph 37).
61.  In this instance, although the relevant restrictions on investment operations apply without distinction to both residents and non-residents, it must none the less be held that they affect the position of a person acquiring a shareholding as such and are thus liable to deter investors from other Member States from making such investments and, consequently, affect access to the market (see, also, the judgment of today's date in Case C-98/01   Commission   v   United Kingdom   [2003] ECR I-4641, paragraph 47).
62.  In those circumstances, it must be held that both the rules based on Article 3(2) of Law 5/1995 and those based on Article 3(1) thereof constitute a restriction on the movement of capital for the purpose of Article 56 EC.
63.  The fact, pleaded by the Spanish Government, that Royal Decree No 1525/1995 provides in its preamble that the rules in question are to be applied consistently with Community law does not make any difference to that finding.
64.  First, a statement of that kind cannot, in the absence of appropriate justification, render a requirement for prior approval compatible with Community law.  Second, such an abstract rule cannot ensure with any certainty that when the system at issue is actually applied, its application will always be consistent with the requirements of Community law.
66.  As the Court has held (see the judgments cited above in   Commission   v   Portugal  , paragraph 47,   Commission   v   France  , paragraph 43, and   Commission   v   Belgium  , paragraph 43), it is undeniable that, depending on the circumstances, certain concerns may justify the retention by Member States of a degree of influence within undertakings that were initially public and subsequently privatised, where those undertakings are active in fields involving the provision of services in the public interest or strategic services.
67.  However, those concerns cannot entitle Member States to plead their own systems of property ownership, referred to in Article 295 EC, by way of justification for obstacles, resulting from privileges attaching to their position as shareholder in a privatised undertaking, to the exercise of the freedoms provided for by the Treaty. That article does not have the effect of exempting the Member States' systems of property ownership from the fundamental rules of the Treaty (see   Commission   v   France  , paragraph 44, and   Commission   v   Belgium  , paragraph 44).
68.  The free movement of capital, as a fundamental principle of the Treaty, may be restricted only by national rules which are justified by reasons referred to in Article 58(1) EC or by overriding requirements of the general interest. Furthermore, in order to be so justified, the national legislation must be suitable for securing the objective which it pursues and must not go beyond what is necessary in order to attain it, so as to accord with the principle of proportionality (see, to that effect,   Commission   v   Portugal  , paragraph 49,   Commission   v   France  , paragraph 45, and   Commission   v   Belgium  , paragraph 45).
69.  As regards a system of prior administrative approval of the kind at issue in the present case, the Court has previously held that such a system must be proportionate to the aim pursued, inasmuch as the same objective could not be attained by less restrictive measures, in particular a system of declarations   ex post facto   (see, to that effect, Joined Cases C-163/94, C-165/94 and C-250/94   Sanz de Lera and Others   [1995] ECR I-4821, paragraphs 23 to 28; Case C-205/99   Analir and Others   [2001] ECR I-1271, paragraph 35;   Commission   v   Portugal  , paragraph 50; and   Commission   v   France  , paragraph 46). Such a system must be based on objective, non-discriminatory criteria which are known in advance to the undertakings concerned, and all persons affected by a restrictive measure of that type must have a legal remedy available to them (Analir  , paragraph 38;   Commission   v   Portugal  , paragraph 50; and   Commission   v   France  , paragraph 46).
71.  As regards the three other undertakings concerned, which are active in the petroleum, telecommunications and electricity sectors, it is undeniable that the objective of safeguarding supplies of such products or the provision of such services within the Member State concerned in the event of a crisis may constitute a public-security reason (see, for similar situations,   Commission   v   France  , paragraph 47, and   Commission   v   Belgium  , paragraph 46) and therefore may justify an obstacle to the free movement of capital.
72.  However, the Court has also held that the requirements of public security, as a derogation from the fundamental principle of free movement of capital, must be interpreted strictly, so that their scope cannot be determined unilaterally by each Member State without any control by the Community institutions.  Thus, public security may be relied on only if there is a genuine and sufficiently serious threat to a fundamental interest of society (see, in particular,   Église de Scientologie  , paragraph 17;   Commission   v   France  , paragraph 48; and   Commission   v   Belgium  , paragraph 47).
74.  In that regard, so far as the Commission's complaint relating to Article 3(2) of Law 5/1995 is concerned, it must be borne in mind that the rules introduced by that provision provide, first, that dealings in the share capital which result in the State's shareholding being reduced by a percentage equal to, or greater than, 10%, provided that the holding has fallen below 50% or that the holding has been reduced to less than 15% of the share capital, and, second, that share purchases resulting in a stake of at least 10% of the share capital, must be approved by a public authority.  Exercise of the State's right is not subject, under the relevant provisions, to any conditions.  The investors concerned are given no indication of the specific, objective circumstances in which prior approval will be granted or withheld.
75.  Such lack of precision does not enable individuals to be apprised of the extent of their rights and obligations deriving from Article 56 EC, with the result that such rules must be regarded as contrary to the principle of legal certainty (Commission   v   France  , paragraph 50).
78.  In that regard, it is clear from paragraphs 49 to 52 of   Commission   v   Belgium  , first, that the system examined in that judgment was one of   ex post facto   opposition, which is less restrictive than a system of prior approval such as that in the present case (see, to that effect, Joined Cases C-515/99, C-519/99 to C-524/99 and C-526/99 to C-540/99   Reisch and Others   [2002] ECR I-2157, paragraph 37).  Furthermore, a feature of the Belgian system was that it listed specifically the strategic assets concerned and the management decisions which could be challenged in any given case.  Finally, any intervention by the administrative authorities was strictly limited to cases in which the objectives of the energy policy were jeopardised.  Any decision taken in that context had to be supported by a formal statement of reasons and was subject to an effective review by the courts.
79.  The rules deriving from the combined application of Article 3(1) of Law 5/1995 and the royal decrees relating to the relevant undertakings in the petroleum, telecommunications and electricity sectors do not satisfy those criteria.  The   "assets or shareholdings necessary for the attainment of the undertaking's object and which are defined as such"  , to which Article 3(1)(b) of Law 5/1995 refers, are precisely defined only in certain of the decrees. The voluntary winding-up, demerger or merger of the undertaking or a change in its object, to which subparagraphs (a) and (c) of Article 3(1) refer, are not, unlike the decisions at issue in   Commission   v   Belgium   (paragraph 50), decisions concerning specific management matters but decisions fundamental to the life of an undertaking.  Similarly, the administrative authority's power to intervene is not in this case, as it was in the case relating to the Kingdom of Belgium, subject to any condition fettering the authority's discretion.  The fact that it appears to be possible to bring legal proceedings against such decisions makes no difference to that finding, since neither the law nor the decrees at issue provide the national courts with sufficiently precise criteria to enable them to review the way in which the administrative authority exercises its discretion.
82.  Nor can that finding be called in question by the argument which the Spanish Government bases on Article 86(2) EC. In that regard, although it is true that paragraph (2) of Article 86 EC, read with paragraph (1) thereof, seeks to reconcile the Member States' interest in using certain undertakings, in particular in the public sector, as an instrument of economic or social policy with the Community's interest in ensuring compliance with the rules on competition and the preservation of the unity of the common market (Case C-202/88   France   v   Commission   [1991] ECR I-1223, paragraph 12; and Case C-157/94   Commission   v   Netherlands   [1997] ECR I-5699, paragraph 39), it is none the less the case that the Member State must set out in detail the reasons for which, in the event of elimination of the contested measures, the performance, under economically acceptable conditions, of the tasks of general economic interest which it has entrusted to an undertaking would, in its view, be jeopardised (Commission   v   Netherlands  , paragraph 58).
86.  In that regard, it is appropriate to point out that in so far as the legislation in issue entails restrictions on freedom of establishment, such restrictions are a direct consequence of the obstacles to the free movement of capital considered above, to which they are inextricably linked.  Consequently, since an infringement of Article 56 EC has been established, there is no need for a separate examination of the measures at issue in the light of the Treaty rules concerning freedom of establishment.