Commission of the European Communities v Portuguese Republic.
Date: 2002-06-04
37 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).
38 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 within the meaning of Article 73b of the Treaty. 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.
40 As regards the prohibition precluding investors from other Member States from acquiring more than a given number of shares in certain Portuguese undertakings, it is common ground - and, moreover, not disputed by the Portuguese Government - that this involves unequal treatment of nationals of other Member States and restricts the free movement of capital. The Portuguese Government does not plead any justification in that regard. However, it argues that it has undertaken, as a matter of policy, not to use the powers conferred on it by the provisions in issue and that, by virtue of the direct effect and primacy of Community law, those provisions must in any event be interpreted as referring solely to investors who are not Community nationals.
41 That argument cannot be accepted. The Court has consistently held that the incompatibility of provisions of national law with provisions of the Treaty, even those directly applicable, can be definitively eliminated only by means of binding domestic provisions having the same legal force as those which require to be amended. Mere administrative practices, which by their nature are alterable at will by the authorities and are not given appropriate publicity, cannot be regarded as constituting the proper fulfilment of a Member State's obligations under the Treaty, since they maintain, for the persons concerned, a state of uncertainty as regards the extent of their rights as guaranteed by the Treaty (see, in particular, Case C-151/94 Commission v Luxembourg [1995] ECR I-3685, paragraph 18, and Case C-358/98 Commission v Italy [2000] ECR I-1255, paragraph 17).
44 That argument cannot be accepted. Article 73b of the Treaty lays down a general prohibition on restrictions on the movement of capital between Member States. That prohibition goes beyond the mere elimination of unequal treatment, on grounds of nationality, as between operators on the financial markets.
45 Even though the rules in issue may not give rise to unequal treatment, they are liable to impede the acquisition of shares in the undertakings concerned and to dissuade investors in other Member States from investing in the capital of those undertakings. They are therefore liable, as a result, to render the free movement of capital illusory (see, in that regard, Joined Cases C-163/94, C-165/94 and C-250/94 Sanz de Lera and Others [1995] ECR I-4821, paragraph 25, and Case C-302/97 Konle [1999] ECR I-3099, paragraph 44).
46 In those circumstances, the rules in issue must be regarded as a restriction on the movement of capital within the meaning of Article 73b of the Treaty. It is therefore necessary to consider whether, and on what basis, that restriction may be justified.
47 As is also apparent from the 1997 Communication, 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 (see today's judgments in Case C-483/99 Commission v France, not yet published in the European Court Reports, paragraph 43, and Case C-503/99 Commission v Belgium, not yet published in the European Court Reports, paragraph 43).
48 However, those concerns cannot entitle Member States to plead their own systems of property ownership, referred to in Article 222 of the Treaty, 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. As is apparent from the Court's case-law (Konle, cited above, paragraph 38), that article does not have the effect of exempting the Member States' systems of property ownership from the fundamental rules of the Treaty.
49 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 73d(1) of the Treaty or by overriding requirements of the general interest and which are applicable to all persons and undertakings pursuing an activity in the territory of the host Member State. 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, Sanz de Lera, cited above, paragraph 23, and Case C-54/99 Église de scientologie [2000] ECR I-1335, paragraph 18).
50 As regards a scheme of prior administrative authorisation of the kind at issue in the present case, the Court has previously held that such a scheme 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, Sanz de Lera, paragraphs 23 to 28; Konle, paragraph 44; and Case C-205/99 Analir and Others [2001] ECR I-1271, paragraph 35). Such a scheme 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, cited above, paragraph 38).
52 As regards the need to safeguard the financial interest of the Portuguese Republic, it must be recalled that, save in so far as they may fall within the ambit of the reasons set out in Article 73d(1) of the Treaty, which relate in particular to tax law, the general financial interests of a Member State cannot constitute adequate justification. It is settled case-law that economic grounds can never serve as justification for obstacles prohibited by the Treaty (see, as regards the free movement of goods, Case C-265/95 Commission v France [1997] ECR I-6959, paragraph 62, and, in relation to freedom to provide services, Case C-398/95 SETTG [1997] ECR I-3091, paragraph 23). That reasoning is equally applicable to the economic policy objectives reflected in Article 3 of Law No 11/90 and the objectives mentioned by the Portuguese Government in the present proceedings, namely choosing a strategic partner, strengthening the competitive structure of the market concerned or modernising and increasing the efficiency of means of production. Such interests cannot constitute a valid justification for restrictions on the fundamental freedom concerned.
56 To the extent that the legislation in issue involves 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 73b of the Treaty 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.
Articles 221 and 231 of the Act of Accession