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Flashback on ECJ Cases – C-139/12 (Caixa d’Estalvis i Pensions de Barcelona) – Acquisition of shares of an entity with immovable property assets can be subject to another indirect than VAT

On March 20, 2014, the ECJ issued its decision in the case C-139/12 (Caixa d’Estalvis i Pensions de Barcelona).

Context: Request for a preliminary ruling — Sixth VAT Directive — Exemptions — Transactions concerning the sale of shares and involving the transfer of interests in immoveable property — Imposition of an indirect tax distinct from VAT — Articles 49 TFEU and 63 TFEU — Purely internal situation


Article in the EU VAT Directive

Artcile 13(B)(d)(5) of the Sixth DIrective (Article 135(1)(f) of the EU VAT Directive 2006/112/EC)

Article 135
1. Member States shall exempt the following transactions:
(f) transactions, including negotiation but not management or safekeeping, in shares, interests in companies or associations, debentures and other securities, but excluding documents establishing title to goods, and the rights or securities referred to in Article 15(2);


Facts

  • It is apparent from the order for reference that, in June 1991, La Caixa, which held 3.26% of the share capital of Inmobiliaria Colonial SA (‘Inmobiliaria Colonial’), decided to increase its shareholding in that company and, to that end, commenced negotiations with a view to acquiring Banco Central SA’s shareholding in that company, the assets of which essentially comprised immovable property. Those negotiations ended, in February 1992, with La Caixa’s acquisition of Banco Central SA’s 63.85% holding in the share capital of Inmobiliaria Colonial. As a result of that acquisition La Caixa’s shareholding in Inmobiliaria Colonial increased to over 65%. Following that acquisition, La Caixa made a successful public offer for the remaining share capital in Inmobiliaria Colonial, culminating in its holding, by virtue of those acquisitions, 96.85% of the shares in Inmobiliaria Colonial.
  • Since it had acquired more than 50% of the capital of the property company in question, in March 1992 La Caixa filed a self-assessment tax return in respect of tax on capital transfers at the rate of 6%, in accordance with Article 108 of the Law on the Stock Market. It declared a taxable base of 16 256 808 232 Spanish Pesetas (ESP) and a tax liability of ESP 975 408 494.
  • In February 1993, however, La Caixa applied to the Delegación Territorial de Barcelona del Departamento de Economía y Finanzas de la Generalidad de Cataluña (Barcelona Regional Office of the Department of Economy and Finance of the Autonomous Government of Catalonia) for reimbursement of sums paid but not due in the amount of ESP 975 408 454, together with the corresponding interest, on the grounds that Article 108 of the Law on the Stock Market was contrary to EU law, in particular the Sixth Directive, and that that article was not, in any event, applicable to the acquisition of the securities in question since that acquisition was not a means of disguising a sale of immovable property.
  • Having received no express reply with the prescribed statutory period, La Caixa lodged an administrative complaint against the implicit rejection of its application for reimbursement. This was dismissed by a decision of the Tribunal Económico-Administrativo Regional de Cataluña (Regional Economic Administrative Court, Catalonia) on 30 January 1998, and this dismissal was confirmed by the Tribunal Económico-Administrativo Central (Central Economic Administrative Court) on 14 May 1999.
  • La Caixa brought an appeal before the Chamber for Contentious Administrative Proceedings of the Tribunal Superior de Justicia de Cataluña (High Court of Justice, Catalonia), the fourth division of which gave a judgment on 28 May 2004 upholding that appeal solely on the ground that the taxable base should not have been set at the real value of all the immovable property constituting Inmobiliaria Colonial’s assets, but at such part of the value of the immovable property as was in proportion to the shares being transferred.
  • The other arguments raised by La Caixa in its appeal were, however, rejected. Those arguments related to, first, the incompatibility of Article 108 of the Law on the Stock Market with the provisions of Article 13B(d)(5) of the Sixth Directive, inasmuch as Article 108 of that Law requires share sales to be subject to tax on capital transfers and exempts them from VAT, notwithstanding the fact that that provision of EU legislation does not permit the VAT exemption to extend to ‘shares or interests equivalent to shares giving the holder thereof de jure or de facto rights of ownership or possession over immovable property or part thereof’. Second, La Caixa had raised the contradiction, in its view, between Article 108, on the one hand, and, on the other, the Spanish Constitution and EU law, inasmuch as that Spanish legal provision establishes a general, irrebuttable presumption of fraud under which all transfers of shares in companies whose assets essentially comprise property are carried out for tax-avoidance purposes.
  • La Caixa brought an appeal against the judgment of the Tribunal Superior de Justicia de Cataluña before the referring court, relying on a single ground of appeal alleging, in particular, breach of Article 13B(d)(5), Article 5(3) and Article 27 of the Sixth Directive.
  • According to La Caixa, both the exemption of the transaction at issue from VAT and the requirement that it be made subject to tax on capital transfers, as provided for in the Law on the Stock Market, are contrary to the Sixth Directive. It is not appropriate, in its view, either to require the transfer of shares in companies giving the holder thereof rights of ownership or possession over immovable property or part thereof to be subject to tax on capital transfers or to exempt that transaction from VAT, particularly since the Member State concerned derogated from application of the Sixth Directive without having followed the procedure laid down in Article 27 for obtaining the necessary authorisation from the Council with a view to preventing tax avoidance in the context of the transfer of immovable property by companies.

Questions

Is it a requirement of Article 13B(d)(5) of Council Directive 77/388/EEC of 17 May 1977 (now Council Directive 2006/112/EC of 28 November 2006) that transactions by a taxable person involving the sale of shares which amount to acquiring title to immovable property be subject to VAT and not be exempt, in view of the exception made in respect of securities giving the holder thereof de jure or de facto rights of ownership or possession over immovable property or part thereof?
Does Council Directive 77/388/EEC of 17 May 1977 permit a provision such as Article 108 of Spanish Law 24/1988 on the Stock Market, which provides that the acquisition of the majority of the capital of a company whose assets essentially comprise immovable property is liable to an indirect tax other than VAT, namely capital transfer duty, without regard to the possibility that the parties to the transaction may be acting in a business capacity, bearing in mind that had the immovable property been transferred directly, instead of transferring the shares or interests, the transaction would have been subject to VAT?
Is it compatible with the freedom of establishment under Article [43] EC (now Article 49 TFEU) and with the free movement of capital under Article 56 EC (now Article 63 TFEU) for a provision of national law such as Article 108 of the Spanish Law on the Stock Market of 28 July 1988, as amended by the 12th additional provision of Law 18/1991, to provide that duty is chargeable on the acquisition of the majority of the capital of companies whose assets essentially comprise immovable property situated in Spain, without offering the possibility of demonstrating that the company over which control is obtained is economically active?

AG Opinion

None


Decision

Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment, as amended by Council Directive 91/680/EEC of 16 December 1991, must be interpreted as not precluding a national provision, such as Article 108 of Law 24/1988 on the Stock Market (Ley 24/1988 del Mercado de Valores) of 28 July 1988, as amended by Law 18/1991 on Income Tax payable by Natural Persons (Ley 18/1991 del Impuesto sobre la Renta de las Personas Físicas) of 6 June 1991, which makes the acquisition of the majority of the capital of a company, the assets of which essentially comprise immovable property, subject to an indirect tax other than value added tax, such as that at issue in the main proceedings.


Summary

The VAT Directive does not preclude a provision of national law under which an indirect tax other than VAT is levied on the acquisition of a majority shareholding in a company whose assets mainly consist of immovable property.


Source:


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