Commission v Greece (Taxation) [2002] EUECJ C-426/98 (19 March 2002)

Judgment By application lodged at the Court Registry on 26 November 1998, the Commission of the European Communities brought an action, pursuant to Article 169 of the EC Treaty (now Article 226 EC), for a declaration that, by imposing, in addition to capital duty, other special charges on the capital of public and private limited liability companies on their formation, on the publication and alteration of their statutes and on the increase in their capital, the Hellenic Republic has failed to fulfil its obligations under the Treaty and, more specifically, under Articles 7 and 10 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), as amended by Council Directive 85/303/EEC of 10 June 1985 (OJ 1985 L 156, p. 23; Directive 69/335). Relevant legislation Community legislation Article 7 of Directive 69/335 provides: 1. Member States shall exempt from capital duty transactions, other than those referred to in Article 9, which were, as at 1 July 1984, exempted or taxed at a rate of 0.50% or less. The exemption shall be subject to the conditions which were applicable, on that date, for the grant of the exemption or, as the case may be, for imposition at a rate of 0.50% or less. The Hellenic Republic shall determine which transactions it shall exempt from capital duty. 2. Member States may either exempt from capital duty all transactions other than those referred to in paragraph 1 or charge duty on them at a single rate not exceeding 1%. 3. In the case of an increase in a company's capital in accordance with Article 4(1)(c), following a reduction in the company's capital as a result of losses sustained, that part of the increase which corresponds to the reduction in capital may be exempted, provided this increase occurs within four years of the reduction in capital. Article 10 of Directive 69/335 states: Apart from capital duty, Member States shall not charge, with regard to companies, firms, associations or legal persons operating for profit, any taxes whatsoever: (a) in respect of the transactions referred to in Article 4; (b) in respect of contributions, loans or the provision of services, occurring as part of the transactions referred to in Article 4; (c) in respect of registration or any other formality required before the commencement of business to which a company, firm, association or legal person operating for profit may be subject by reason of its legal form. Article 12(1) of Directive 69/335 establishes an exhaustive list of the taxes and duties other than capital duty which may, notwithstanding Articles 10 and 11, be imposed on capital companies in connection with the transactions referred to in those latter articles. Article 12(1)(e) of that directive mentions duties paid by way of fees or dues. As is clear from the first recital in the preamble thereto, Directive 69/335 seeks to promote the free movement of capital, which is regarded as essential for the creation of an economic union whose characteristics are similar to those of a domestic market. According to the last recital in the preamble to Directive 69/335, the retention of other indirect taxes with the same characteristics as the capital duty or the stamp duty on securities might frustrate the purpose of that directive and those taxes should therefore be abolished. Under Article 3 of Directive 85/303, Member States were to take the measures necessary to comply with the Directive not later than 1 January 1986. National legislation Under Article 10(1)(p)(aa) of Decree-Law No 4114/1960, the Lawyers' Fund is financed, inter alia , by the payment of an amount of one per cent (1%) on the value of any agreement drawn up by notarial act. Article 14(1) of Law No 1512/1985 increased the rate of that charge to 1.3%. Another resource for the Lawyers' Fund is the levy introduced by Article 10(1)(p)(bb) of Decree-Law No 4114/1960, which provides: ... the payment of an amount of five per thousand (0.5%) on the capital of each commercial company formed, as fixed by the competent tax services, in respect of the publication of the statutes of those companies, in accordance with Articles 42 to 46 of the Commercial Code. The following shall be subject to the payment of that amount on their publication in accordance with the preceding provisions: (1) increases in capital by means of an alteration to the statutes of the abovementioned companies and of private limited liability companies, to the extent that the increases in capital of the private limited liability companies occur within twelve (12) months of their formation; (2) ... and (3) acts by which the period of existence of companies is extended. In this case, the abovementioned sum shall be paid in respect of the amount of the companies' capital on which the corresponding stamp duty is payable. The duty which, under the abovementioned provisions, must be paid to the Fund may not in any case be less than half of the minimum stamp duty which, on each occasion, is prescribed in respect of the statutes of the companies. All other alterations to the statutes and the dissolution of companies shall be subject to a fixed duty of GRD one hundred (100) payable to the Fund. Article 17 of Law No 1676/1986 states: In accordance with the provisions of the present law, a duty called duty on the concentration of capital shall be imposed on: (a) commercial companies and professional associations, (b) cooperative organisations of any level, all other companies, legal persons, associations of persons and partnerships, to the extent that they operate for profit, (c) branches of foreign companies. Under Article 21 of that law, the rate of that duty is fixed at one per cent (1%) of the taxable value. It is clear from Royal Decree No 22/1956 that levies are payable to the Lawyers' Welfare Fund in the amounts of 1% of the capital of partnerships and private limited liability companies on the publication of the statutes of those companies at the Polimeles Protodikio Athinon (Court of First Instance, Athens) (Greece) and two thirds of the stamp duty (0.5% of the capital) on publication of the acts extending the period of existence of those companies. Pre-litigation procedure The Commission considered that, in Greece, the sum of the indirect taxes imposed on the formation of public and private limited liability companies, the publication and alteration of their statutes and the increase in their capital substantially exceeded the rate fixed by Article 7 of Directive 69/335 and was therefore contrary to that directive. By letter of 3 February 1993, the Commission gave the Hellenic Republic formal notice to submit its observations within two months. In its reply of 6 May 1993, the Hellenic Republic contended that, first, the charges concerned were not indirect taxes and, second, they constituted consideration for services provided to the persons liable for payment and were therefore paid by way of fees or dues within the meaning of Article 12(1)(e) of Directive 69/335. The Commission repeated its complaints in the reasoned opinion sent to the Hellenic Republic on 23 February 1996. In that opinion, the Commission requested it to adopt, within two months, the measures necessary to fulfil its obligations under the Treaty and under Directive 69/335. By letter of 19 June 1996, the Hellenic Republic replied to the reasoned opinion, expressing the same view as in its reply to the letter of formal notice. In those circumstances, the Commission decided to bring the present action. Substance The Commission claims, in essence, that the Hellenic Republic has failed to fulfil its obligations under Articles 7(2) and 10 of Directive 69/335 by providing for, in addition to the duty on the concentration of capital which corresponds to the capital duty provided for by Directive 69/335, other charges imposed on public and private limited companies when they are formed, publish or alter their statutes and increase their capital. In certain cases, the transactions concerned are therefore subject to a total rate of taxation of 3.8%, exceeding by 2.8% the upper limit fixed in Article 7(2) of Directive 69/335. Accordingly, those charges constitute taxes prohibited under Article 10 of that directive. In order to determine whether the alleged failure is actually made out, it is appropriate, first, to examine whether the charges at issue constitute taxes prohibited under Article 10 of Directive 69/335. If such proved to be the case, it would be necessary, second, to determine whether they are paid by way of fees or dues within the meaning of Article 12(1)(e) of that directive. The classification as taxes of the charges at issue The Hellenic Government submits that the charges at issue, levied for the benefit of the Lawyers' Fund and the Lawyers' Welfare Fund, are payable because of the involvement of advocates and notaries, who are affiliated to those funds, in the drawing up and certification of the acts relating to a transaction covered by Directive 69/335. The sums thus collected are neither social contributions nor taxes within the meaning of that directive. On that point, the Hellenic Government contends more specifically that, if a charge is to be classified as a social contribution or a tax within the meaning of Article 4 of the Hellenic Constitution, it must not be paid by way of fees or dues in the eyes of the person liable for payment. In the present case, the charges concerned cannot be classified as social contributions since the persons liable for payment receive, by way of consideration, a service. Nor can they be classified as taxes given that a charge which is not paid into the State budget, which does not finance the general needs of the State and the amount of which is not fixed according to the financial capacity of the person liable for payment does not constitute a tax, just as a charge levied by way of consideration for a service provided by the State does not constitute a tax. The Hellenic Government contends next that, in so far as the person liable for payment receives services from persons affiliated to the bodies in favour of which the charges concerned are levied, those charges are more like employers' contributions than taxes. It submits that an employee-employer relationship is not necessary for a specific charge to be classified as an employers' contribution. Even if that relationship were necessary, the link between the advocate and his client should, for the duration of the brief, be understood as such. The absence of a direct relationship of insurance between the person liable for payment of the charges concerned and the funds which receive them has no impact on the legal classification of those charges since, in the standard tripartite relationship of insurance, namely that between employer, employee and social insurance body, the payment of the employers' contribution to the social insurance body does not make the employer affiliated to that body. It should be observed, first, that it is settled case-law that the nature of a tax, duty or charge must be determined under Community law according to the objective characteristics by which it is levied, irrespective of its classification under national law (see, to that effect, Joined Cases C-197/94 and C-252/94 Bautiaa and Société française maritime [1996] ECR I-505, paragraph 39; and Case C-4/97 Nonwoven [1998] ECR I-6469, paragraph 19). Second, Article 10 of Directive 69/335, read in the light of the last recital in the preamble to that directive, prohibits in particular indirect taxes with the same characteristics as capital duty. It thus refers to, inter alia , any taxes whatsoever which are payable in respect of the formation of a capital company or an increase in its capital (Article 10(a)) or in respect of registration or any other formality required before the commencement of business to which a company may be subject by reason of its legal form (Article 10(c)). That latter prohibition is justified by the fact that, even though the taxes in question are not imposed on capital contributions as such, they are nevertheless imposed on account of formalities connected with the company's legal form, in other words on account of the instrument employed for raising capital, so that their continued existence would similarly risk frustrating the aims of the directive (Case C-2/94 Denkavit Internationaal and Others [1996] ECR I-2827, paragraph 23). Since Directive 69/335 precludes the levying of any taxes whatsoever on transactions falling within its scope and does not prohibit only the imposition of indirect taxes, the Hellenic Government's argument designed to demonstrate that the charges at issue do not constitute indirect taxes but are in the nature of employers' contributions is not relevant. In those circumstances, it is appropriate to examine the characteristics of the charges at issue in order to determine whether their imposition is prohibited under Article 10 of Directive 69/335. As regards, first of all, the charge provided for in Article 10(1)(p)(aa) of Decree-Law No 4114/1960, it should be recalled that it is payable when an agreement is drawn up by notarial act. To the extent that the act forming a public or private limited liability company must, under Law No 2190/1920 on public limited liability companies and Law No 3190/1955 on private limited liability companies, be drawn up in notarised form, the authentication of that act by a notary constitutes a formality required before the commencement of business by the company within the meaning of Article 10(c) of Directive 69/335 and the charge levied on that occasion is directly covered by the prohibition imposed under that provision. As regards, next, the charge provided for in Article 10(1)(p)(bb) of Decree-Law No 4114/1960, levied on the formation of any commercial company in respect of the publication of its statutes, it is not in dispute in the present case that, first, that publication is mandatory and, second, that charge is payable by capital companies within the meaning of Directive 69/335. In those circumstances, it must be concluded that, for the same reasons as those set out in paragraph 27 above, that charge is also directly concerned by the prohibition imposed under Article 10(c) of that directive. As regards the charges levied under those two national provisions where a private limited liability company increases its capital within 12 months of its formation, the Court finds that those charges are prohibited under Article 10(c) of Directive 69/335, since they are payable in respect of formalities which, although not formally amounting to a procedure required before such a company commences business, are none the less necessary for the carrying on of that business (see, to that effect, Case C-188/95 Fantask and Others [1997] ECR I-6783 , paragraph 22). As regards, finally, the charge levied under Royal Decree No 22/1956 in respect of the publication at the Polimeles Protodikio Athinon of the original or amended statutes of partnerships and private limited liability companies having their registered office in the judicial district of that court, it should be noted that it is not disputed that that publication constitutes a statutory obligation for those companies. It follows that it must be regarded as either a formality required before the commencement of those companies' business or a formality which is necessary for the carrying on of that business, for the purposes of Article 10(c) of Directive 69/335. Accordingly, the charge levied on that occasion is covered by the prohibition imposed by that provision. In the light of the foregoing, it must be concluded that the charges at issue constitute taxes prohibited under Article 10(c) of Directive 69/335. Whether the charges at issue are paid by way of fees or dues In the alternative, the Hellenic Government contends that the charges at issue are paid by way of fees or dues, within the meaning of Article 12(1)(e) of Directive 69/335, and are therefore compatible with that directive. Having regard to the case-law of the Court, which has held that an annual charge due in respect of the registration of capital companies in a register of companies (Joined Cases C-71/91 and C-178/91 Ponente Carni and Cispadana Costruzioni [1993] ECR I-1915 ) and a charge, even on a flat-rate basis, payable by way of consideration for an operation required by law in the public interest ( Denkavit Internationaal and Others ) may be paid by way of fees or dues within the meaning of Article 12(1)(e), the charges at issue, levied for the benefit of social insurance bodies by way of consideration for services provided by those affiliated to those bodies, are manifestly compatible with Directive 69/335. The Commission submits that those charges cannot constitute duties paid by way of fees or dues, within the meaning of Article 12(1)(e) of Directive 69/335, since, first, advocates who act when the documents concerned in this case are drawn up are remunerated on the basis of agreements between them and their clients and, second, it is not apparent from any provision of national legislation that those charges are in any way related to the remuneration of advocates. It considers further that the two cases relied on by the Hellenic Government are not relevant to the present case since the charges examined in Ponente Carni were of a quite different kind from those at issue in the present case and those concerned in Denkavit Internationaal did not fall within the scope of Article 10 of Directive 69/335. In that regard, it should be recalled, first, that it is settled case-law that the distinction drawn between taxes prohibited by Article 10 of Directive 69/335 and duties paid by way of fees or dues, which can lawfully be imposed under Article 12(1)(e) of that directive, implies that the latter comprise only remuneration the amount of which is calculated on the basis of the cost of the service rendered. Where the amount of the remuneration is wholly unrelated to the cost of the service in question or is calculated, not by reference to the costs of the transaction for which it constitutes the consideration, but to all the operational and capital costs incurred by the department responsible for that transaction, it must be regarded as a tax falling exclusively within the prohibition laid down in Article 10 of Directive 69/335 (see, inter alia , Case C-56/98 Modelo [1999] ECR I-6427, paragraph 29; and Case C-206/99 SONAE [2001] ECR I-4679 , paragraph 32). It must also be noted that a duty cannot be said to be paid by way of fees or dues within the meaning of Article 12(1)(e) of Directive 69/335 if it is not wholly for the exclusive benefit, in whatever form, of the natural or legal person which provides or finances the service for which the duty is supposed to constitute consideration. It has not been established that the publication in respect of which a part of the charges at issue is levied constitutes services actually provided by advocates or notaries affiliated to the Lawyers' Fund or the Lawyers' Welfare Fund and that those charges, which are allegedly levied in order to pay for the service provided by a particular person and paid to the abovementioned funds, are wholly for the exclusive benefit of that same person or a person claiming under him. It should be noted, second, that the duties in question in Ponente Carni and Cispadana Costruzioni and Denkavit Internationaal and Others are different from the charges at issue here in that the persons in receipt of the former were the legal persons responsible for providing, either directly or indirectly, services to those liable for payment of those duties and not legal persons providing no service to those liable for payment. In those circumstances, the Court finds that it has not been established that the charges at issue are paid by way of fees or dues within the meaning of Article 12(1)(e) of Directive 69/335. The limitation of the effects in time of the present judgment At the hearing, the Hellenic Government requested the Court to limit the effects in time of the present judgment if it found that the charges at issue were not compatible with Directive 69/335. In support of its request it put forward considerations relating to the financial consequences of the judgment to be delivered for the Lawyers' Fund and to the legitimate expectations of those affiliated to that fund. In that regard, it must be stated that the legitimate expectations the observance of which is thus requested are in reality the expectations of affiliated persons in the ability of the funds to finance the benefits which they are anticipating. The Hellenic Government's arguments are therefore based solely on considerations of a financial nature. It is clear from the case-law of the Court that although, exceptionally, in application of the general principle of legal certainty inherent in the Community legal order, the Court may decide to limit the effects in time of a judgment declaring that a Member State has failed to fulfil one of its obligations under Community law, the financial consequences which may ensue for a State from a judgment of the Court have never in themselves justified limiting its effects. To limit the effects of a judgment solely on the basis of such considerations would considerably diminish the judicial protection of the rights which individuals have under Community law (see, to that effect, Case C-35/97 Commission v France [1998] ECR I-5325 , paragraphs 49 and 52). It follows that the Hellenic Government's request to limit the effects in time of the present judgment must be rejected. In the light of the foregoing, it must be declared that, by imposing, in addition to capital duty, other special charges on the capital of public and private limited liability companies on their formation, on the publication and alteration of their statutes and on the increase in their capital, the Hellenic Republic has failed to fulfil its obligations under Articles 7 and 10 of Directive 69/335. Costs 45. Under Article 69(2) of the Rules of Procedure, the unsuccessful party is to be ordered to pay the costs if they have been applied for in the successful party's pleadings. Since the Commission applied for costs and the Hellenic Republic has been unsuccessful, the latter must be ordered to pay the costs. On those grounds, THE COURT (Sixth Chamber) hereby: 1. Declares that, by imposing, in addition to capital duty, other special charges on the capital of public and private limited liability companies on their formation, on the publication and alteration of their statutes and on the increase in their capital, the Hellenic Republic has failed to fulfil its obligations under Articles 7 and 10 of Council Directive 69/335/EEC of 17 July 1969 concerning indirect taxes on the raising of capital, as amended by Council Directive 85/303/EEC of 10 June 1985; 2. Orders the Hellenic Republic to pay the costs. Colneric Gulmann Puissochet SchintgenSkouris Delivered in open court in Luxembourg on 19 March 2002. R. Grass F. Macken Registrar President of the Sixth Chamber 1: Language of the case: Greek. BAILII: Copyright Policy | Disclaimers | Privacy Policy | Feedback | Donate to BAILII