61989J0015

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Tax provisions - Harmonization of laws - Indirect taxes on the raising of capital - Waiver by a parent company of a claim against its subsidiary - Subjection to capital duty - Permissible

(Council Directive 69/335, Art. 4(2)(b) )

Where a parent company clears off a liability of a subsidiary by waiving all or part of a claim against the subsidiary, capital duty may be levied under Article 4(2)(b) of Directive 69/335 concerning indirect taxes on the raising of capital.

Owing to the taking over of all or part of the subsidiary' s losses, such a waiver represents the provision of a service which increases the assets of that company and may increase the value of its shares by helping to strengthen its economic potential.

In Case C-15/89,

REFERENCE to the Court under Article 177 of the EEC Treaty by the Hoge Raad der Nederlanden for a preliminary ruling in the proceedings pending before that court between

Deltakabel BV

and

Staatssecretaris van Financiën,

on the interpretation of Article 4 of Council Directive 69/335/EEC of 17 July 1969 concerning indirect taxes on the raising of capital (OJ, English Special Edition 1969 (II), p. 412),

THE COURT (Fifth Chamber),

composed of: J. C. Moitinho de Almeida, President of the Chamber, G. C. Rodríguez Iglesias, Sir Gordon Slynn, R. Joliet and F. Grévisse, Judges,

Advocate General: M. Darmon

Registrar: H. A. Ruehl, Principal Administrator,

after considering the observations submitted on behalf of:

the Government of the Netherlands, by B. R. Bot, Secretary-General at the Ministry of Foreign Affairs, acting as Agent,

the Commission of the European Communities, by J. F. Buhl, Legal Adviser, acting as Agent,

having regard to the Report for the Hearing,

after hearing oral argument from the Commission, represented by B. J. Drijber, at the hearing on 24 October 1990,

after hearing the Opinion of the Advocate General delivered at the sitting on 13 November 1990,

gives the following

Judgment

1 By judgment of 14 December 1988, which was received at the Court Registry on 23 January 1989, the Hoge Raad der Nederlanden (Supreme Court of the Netherlands) referred to the Court for a preliminary ruling under Article 177 of the EEC Treaty a question on the interpretation of Article 4(2)(b) of Council Directive 69/335/EEC of 17 July 1969 concerning indirect taxes on the raising of capital (OJ, English Special Edition 1969 (II), p. 412).

2 The question was raised in proceedings between the company Deltakabel BV ("Deltakabel") and the Staatssecretaris van Financiën (Secretary of State for Finance) concerning the levying of capital duty on the waiver by the company Deltavisie BV ("Deltavisie") of its current-account claim against Deltakabel.

3 Deltakabel, which was set up on 28 December 1972, has as its object the development, production and operation of means of mass communication. Until 1 January 1981 all its shares were held by the holding company Deltavisie. The two companies, whose boards of directors were composed of the same persons, were considered to form a single entity for corporation tax purposes. Until 1980 Deltavisie financed Deltakabel' s losses through a current-account relationship.

4 On 1 January 1981, Deltavisie sold its shares in Deltakabel to an associated company, Beleggingsmaatschappij Mastbos BV. On 31 December 1980, in view of that transaction, Deltavisie waived part of its claim against Deltakabel. The overall value of Deltakabel was thus brought to HFL 1, the price at which Deltavisie' s shares were sold.

5 According to the judgment referring the question for a preliminary ruling, by a notice of 4 April 1984 the Netherlands tax authorities demanded from Deltakabel capital duty amounting to HFL 172 766 and the payment of a surcharge, which, after remission, amounted to 25% of the duty demanded. The tax authorities took the view that the transaction whereby Deltavisie waived its claim against Deltakabel was covered by Article 34(c) of the Wet op Belastingen van Rechtsverkeer (Law on the taxation of legal transactions). Under that provision, duty is payable on "the acquisition of capital from a shareholder or holder of profit-sharing bonds, founders' shares and the like without the express grant of the rights referred to in (b) above". Article 34(b) concerns "the raising of capital in return for which profit-sharing bonds, founders' shares and the like, conferring a right to a share in the profits or in the surplus proceeds arising from dissolution and liquidation, are granted".

6 That law implements in the Netherlands Article 4(2)(b) of Council Directive 69/335. Under that provision, capital duty may be charged on "an increase in the assets of a capital company through the provision of services by a member which do not entail an increase in the company' s capital, but which do result in variation in the rights in the company or which may increase the value of the company' s shares".

7 After the notice of assessment issued on 4 April 1984 by the Netherlands tax authorities had been upheld by the tax inspector, Deltakabel brought an action before the Gerechtshof (Court of Appeal), The Hague. It sought to show before that court that, since the two companies were treated as forming a single entity for corporation tax purposes, Deltavisie' s claim was not a real claim but an accounting item indicating the total of the sums already credited to Deltakabel in order to clear off its losses. That argument was not accepted by the Gerechtshof in its judgment of 17 March 1987. It reasoned that the two companies were legally distinct and that their annual accounts showed that each managed its financial assets separately. Nevertheless, the Gerechtshof quashed the contested decision in so far as it imposed a capital duty surcharge. Deltakabel then appealed in cassation to the Hoge Raad, which considered that the view taken by the Gerechtshof as to the actual existence of the claim was sufficiently reasoned and could not be overturned.

8 The Hoge Raad was uncertain whether Deltavisie' s waiver of its claim against Deltakabel could increase the value of Deltakabel' s shares, as required by Article 4(2)(b) of Directive 69/335. It therefore decided to stay the proceedings until the Court had given a preliminary ruling on the following question:

"If a parent company clears off a liability of its subsidiary by waiving in whole or in part a claim against that subsidiary, does Article 4(2)(b) of Directive 69/335/EEC of 17 July 1969 permit the levying of capital duty, particularly in view of the requirement that the remission of the debt must be capable of increasing the value of the shares?"

9 Reference is made to the Report for the Hearing for a fuller account of the facts of the case, the course of the procedure and the written observations submitted to the Court, which are mentioned or discussed hereinafter only in so far as is necessary for the reasoning of the Court.

10 For the purpose of examining whether the waiver by a parent company of a claim which it has against its subsidiary is a transaction covered by Article 4(2)(b) of Directive 69/335, it must be determined whether the effect of that transaction is to increase the assets of the subsidiary and whether it may increase the value of the subsidiary' s shares.

11 As regards the first condition - an increase in the assets - the Court stated in its judgment in Case C-38/88 Waldrich Siegen Werkzeugmaschinen GmbH v Finanzamt Hagen [1990] ECR I-1447 that "when a company has incurred losses and one of its shareholders agrees to absorb those losses, that shareholder makes a contribution which increases the assets of the company. He restores the assets to the level which they had reached before the losses were sustained".

12 The same reasoning may be applied where a member waives a claim which he has against his company and which arose from the provision of sums to clear off losses incurred by that company. Such a transaction amounts in effect to taking over all or part of the company' s losses.

13 As regards the second condition - an increase in the value of the company' s shares - reference should be made to the judgment in Case 270/81 Felicitas Rickmers-Linie KG & Co v Finanzamt fuer Verkehrsteuern [1982] ECR 2771 in which the Court stated that "according to the principles on which harmonized capital duty is based, such duty should be charged only on transactions which constitute in law the raising of capital and only in so far as they contribute to increasing the company' s economic potential", that reasoning being taken from the preamble to Council Directive 74/553/EEC of 7 November 1974 amending Article 5(2) of Directive 69/335/EEC concerning indirect taxes on the raising of capital (OJ L 303, p. 9).

14 It follows that the decisive test to be satisfied in order for a capital-raising transaction to attract capital duty is the strengthening of the economic potential of the company benefiting from it. In the present case, the remission of debt granted by the member has helped to strengthen the economic potential of that company by reducing its deficit. That transaction must therefore be regarded as being capable of increasing the value of its shares, as envisaged in Article 4(2)(b) of Directive 69/335.

15 The answer to the question submitted by the national court must therefore be that where a parent company clears off a liability of a subsidiary by waiving all or part of a claim against the subsidiary, capital duty may be levied under Article 4(2)(b) of Directive 69/335.

Costs

16 The costs incurred by the Government of the Netherlands and the Commission of the European Communities, which have submitted observations to the Court, are not recoverable. Since the proceedings are, in so far as the parties to the main action are concerned, in the nature of a step in the action before the national court, the decision on costs is a matter for that court.

On those grounds,

THE COURT (Fifth Chamber),

in answer to the question submitted to it by the Hoge Raad der Nederlanden, by judgment of 14 December 1988, hereby rules:

Where a parent company clears off a liability of a subsidiary by waiving all or part of a claim against the subsidiary, capital duty may be levied under Article 4(2)(b) of Council Directive 69/335/EEC of 17 July 1969 concerning indirect taxes on the raising of capital.