JUDGMENT OF THE COURT (Sixth Chamber)

29 September 1999 (1)

(Directive 69/335/EEC — Indirect taxes on the raising of capital — Charge fordrawing up a notarially attested act recording an increase in share capital and achange in a company's name and registered office)

In Case C-56/98,

REFERENCE to the Court under Article 177 of the EC Treaty (now Article 234EC) by the Supremo Tribunal Administrativo (Portugal) for a preliminary rulingin the proceedings pending before that court between

Modelo SGPS SA

and

Director-Geral dos Registos e Notariado,

in the presence of:

Ministério Público,

on the interpretation of Articles 4(3), 10 and 12(1)(e) of Council Directive69/335/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 Directive85/303/EEC of 10 June 1985 (OJ 1985 L 156, p. 23),

THE COURT (Sixth Chamber),

composed of: P.J.G. Kapteyn, President of the Chamber, J.L. Murray andH. Ragnemalm (Rapporteur), Judges,

Advocate General: G. Cosmas,

Registrar: L. Hewlett, Administrator,

after considering the written observations submitted on behalf of:

—    Modelo SGPS SA, by C. Osório de Castro, of the Oporto Bar,

—    the Portuguese Government, by L. Fernandes, Director of the Legal Service,Directorate-General for the European Communities, Ministry of ForeignAffairs, and Â. Seiça Neves, of the same Service, and R. Barreira, Adviserin the Centre for Legal Studies, attached to the office of the Prime Minister,acting as Agents,

—    the Belgian Government, by J. Devadder, Director of Administration in theLegal Department of the Ministry of Foreign Affairs, Trade andCooperation with Developing Countries, acting as Agent,

—    the German Government, by C.-D. Quassowski, Regierungsdirektor in theFederal Ministry of Economic Affairs, and A. Dittrich, Ministerialrat in theFederal Ministry of Justice, acting as Agents,

—    the Austrian Government, by C. Stix-Hackl, Gesandte in the FederalMinistry of Foreign Affairs, acting as Agent,

—    the Commission of the European Communities, by A.M. Alves Vieira andH. Michard, of its Legal Service, acting as Agents,

having regard to the Report for the Hearing,

after hearing the oral observations of Modelo SGPS SA, represented by C. Osóriode Castro; the Portuguese Government, represented by L. Fernandes and A. CésarMachado, Adviser in the Centre for Legal Studies, attached to the office of thePrime Minister, acting as Agent; the Belgian Government, represented by A.Snoecx, Adviser with the Legal Service, Ministry of Foreign Affairs, Trade andCooperation with Developing Countries, acting as Agent; the German Government,represented by A. Dittrich; the Spanish Government, represented by S. OrtizVaamonde, Abogado del Estado, acting as Agent; the French Government,represented by S. Seam, Foreign Affairs secretary in the Legal Directorate, Ministryof Foreign Affairs, acting as Agent; and the Commission, represented by A. AlvesVieira and H. Michard, at the hearing on 25 March 1999,

after hearing the Opinion of the Advocate General at the sitting on 20 May 1999,

gives the following

Judgment

1.

    By decision of 21 January 1998, received at the Court on 24 February 1998, theSupremo Tribunal Administrativo (Supreme Administrative Court) referred to theCourt for a preliminary ruling under Article 177 of the EC Treaty (now Article 234EC) four questions on the interpretation of Articles 4(3), 10 and 12(1)(e) ofCouncil Directive 69/335/EEC of 17 July 1969 concerning indirect taxes on theraising of capital (OJ, English Special Edition 1969 (II), p. 412), as amended byCouncil Directive 85/303/EEC of 10 June 1985 (OJ 1985 L 156, p. 23; hereinafter'the Directive‘).

2.

    Those questions arose in proceedings between Modelo SGPS SA (hereinafter'Modelo‘) and the Director-Geral dos Registos e Notariado (Director-General forRegistries and the Notariat) concerning the payment of a charge for the notarialcertification of deeds recording an increase in Modelo's share capital and a changein its name and registered office.

Community legislation

3.

    The aim of the Directive, as is clear from the preamble thereto, is to encourage thefree movement of capital, which is regarded as essential for the creation of aneconomic union whose characteristics are similar to those of a domestic market. As far as concerns taxes on the raising of capital, the pursuit of that objectivepresupposes the abolition of indirect taxes in force in the Member States until thenand imposing in their place a duty charged only once in the common market andat the same level in all the Member States (Case C-188/95 Fantask and Others[1997] ECR I-6783, paragraph 13).

4.

    Article 4(1) of the Directive provides:

'The following transactions shall be subject to capital duty:

(a)    the formation of a capital company;

(b)    ...

(c)    an increase in the capital of a capital company by contribution of assets ofany kind;

...‘.

5.

    Under Article 4(3) of the Directive, formation within the meaning of Article 4(1)(a)does not include 'any alteration of the constituent instrument or regulations of acapital company‘.

6.

    Article 4(2) of the Directive lists the various transactions in respect of which thedecision whether or not to charge capital duty rests, subject to certain conditions,with the Member States.

7.

    In accordance with the final recital in its preamble, the Directive also provides forthe abolition of other indirect taxes having the same characteristics as capital duty. The taxes in question, levying of which is prohibited, are set out in Article 10 of theDirective, which reads as follows:

'Apart from capital duty, Member States shall not charge, with regard tocompanies, firms, associations or legal persons operating for profit, any taxeswhatsoever:

(a)    in respect of the transactions referred to in Article 4;

(b)    in respect of contributions, loans or the provision of services, occurring aspart of the transactions referred to in Article 4;

(c)    in respect of registration or any other formality required before thecommencement of business to which a company, firm, association or legalperson operating for profit may be subject by reason of its legal form‘.

8.

    Article 12(1) of the Directive sets out an exhaustive list of taxes and duties otherthan capital duty which, by derogation from Article 10, may be levied on capitalcompanies in respect of transactions listed therein (see Case 36/86 Dansk Sparinvest[1988] ECR 409, paragraph 9). Article 12(1)(e) of the Directive mentions 'dutiespaid by way of fees or dues‘.

The relevant national legislation

9.

    The Portuguese Code governing the notarial profession, enacted by Decree-LawNo 47619 of 31 March 1967, provides that certain acts must be recorded inofficially attested deeds, that is to say, documents drawn up by a notary. Theyinclude acts which 'incorporate commercial companies, change their form, dissolvethem or put them into ordinary liquidation ... and those which amend anymemorandum of association‘ (Article 89(e) of the Code).

10.

    Charges for drawing up notarial instruments are set forth in the table of notarialcharges (hereinafter 'the Table‘), in the version annexed to Decree-Law No 397/83of 2 November 1983.

11.

    Article 1(1) of the Table provides that, in general, the value of notarially attestedacts is that of the assets to which they relate. Article 1(2) specifies the value tobe attributed to each type of notarially attested act. Thus, for an act incorporatinga company, amending the memorandum of association or dissolving the company,the value is equal to the company's capital (Article 1(2)(e)); for an increase incapital, whether or not the memorandum of association is amended, it is theamount of the increase (Article 1(2)(f)); and for increases in capital where a partialalteration has been made to clauses other than that directly affected by theincrease, it is either the amount of the increase or the resulting amount of sharecapital, whichever entails a higher charge (Article 1(2)(g)).

12.

    Article 5 of the Table provides that where the officially attested deed is of a certainvalue, variable charges are to be applied in addition to the fixed charges set out inArticle 4 of the Table. These are calculated by reference to the overall value ofthe deed: for every PTE 100, the sum of PTE 10 is payable on values up toPTE 200 000; PTE 5 on values between PTE 200 000 and PTE 1 000 000; PTE 4on values between PTE 1 000 000 and PTE 10 000 000; and PTE 3 on values inexcess of PTE 10 000 000.

13.

    Article 27(1)(c) of the Table provides for a 50% reduction in the charges set outin Article 5 in the case of deeds recording a partial amendment of a company'smemorandum of association, or the fact that the period for which the company wasconstituted has been extended or continued.

The main proceedings

14.

    Modelo decided to increase its share capital from PTE 7 240 000 000 toPTE 14 000 000 000 and to change its name and registered office. On 31December 1992 it had officially attested deeds to that effect drawn up in the SixthNotarial Office, Oporto. On that account, it was called upon to pay a charge ofPTE 21 006 000.

15.

    Modelo contested the calculation of the charge before the Tribunal Tributário dePrimeira Instância (Tax Court of First Instance), Oporto, which found against it. Modelo thereupon appealed to the Supremo Tribunal Administrativo on theground that the contested charge was really a tax, the level of which shouldtherefore be set, not by the Government, but by Parliament, that the amountdemanded was out of all proportion to the services provided and that the levyingof that charge was incompatible with the Directive.

16.

    Uncertain whether the Table was compatible with the Directive, the SupremoTribunal Administrativo decided to stay proceedings and to refer the followingquestions to the Court for a preliminary ruling:

'(1)    Is it open to an individual to rely on Article 10 of Council Directive69/335/EEC in his relations with the State where the latter has nottransposed that directive into its national legal system?

(2)    Are the transactions referred to in Article 4(3) of Directive 69/335/EEC tobe regarded as covered by the prohibition contained in Article 10 thereof,to the effect that the charging is prohibited not only of capital duty but alsoof any other tax, in whatever form?

(3)    Must Articles 10 and 12(1)(e) of Directive 69/335/EEC be interpreted asprecluding notarial fees for drawing up a (legally binding) official documentattesting to resolutions to increase capital or to amend articles of associationfrom being varied according to the amount of the capital or the increasetherein, rather than according to the cost of the service provided?

(4)    If so, is it permissible, in the light of Articles 10 and 12(1)(e) of Directive69/335/EEC, for the amount of the aforementioned fees manifestly andunreasonably to exceed the actual cost of the specific service provided?‘

The questions referred for a preliminary ruling

17.

    By those questions, the national court is essentially asking whether notarial chargesmay be regarded as taxes for the purposes of the Directive and, if so, whether theyare caught by the prohibition laid down in Article 10 thereof or whether they arefees or dues within the meaning of Article 12(1)(e). Lastly, the national court askswhether Article 10 of the Directive creates rights on which individuals may rely inproceedings before the national courts.

The meaning of 'tax‘ for the purposes of the Directive

18.

    It appears from the Portuguese Government's reply to questions put by the Courtthat, in Portugal, notaries are employed by the State and have the same rights andduties as other civil servants, their remuneration being made up partly of a fixedamount — determined in accordance with the same criteria as are applied to allother civil servants — and partly of a variable amount representing a share of themonies received in payment.

19.

    Notaries prepare a monthly statement of the monies collected. From the totalamount thus obtained, the percentage amounts payable to the notary and his agentsare deducted. The balance is paid to the Cofre dos Conservadores, Notários e

Funcionários de Justiça (Fund for Registrars, Notaries and Legal Officials;hereinafter 'the Fund‘).

20.

    According to the Portuguese Government, the Fund is responsible for paying thefixed portion of the salaries payable to notaries and other civil servants; it alsomeets the cost of training notaries and of acquiring office space and equipment forthem; and, subject to authorisation from the Ministry of Justice, it covers otherexpenditure arising from the conduct of legal business.

21.

    Thus, a proportion of the charges at issue in the main proceedings, payablepursuant to a rule of law laid down by the State, is paid by a private individual tothe State for the financing of its official business.

22.

    In the light of the objectives pursued by the Directive, in particular the abolitionof indirect taxes having the same characteristics as capital duty, charges collectedby public officials for notarising a transaction covered by the Directive, which arein part paid to the State in order to subsidise public expenditure, must be regardedas taxes for the purposes of the Directive.

23.

    Consequently, the Directive must be interpreted as meaning that charges constitutetaxes for the purposes of the Directive where they are collected for drawing upnotarially attested acts recording a transaction covered by the Directive, under asystem where notaries are employed by the State and the charges in question arepaid in part to that State for the financing of its official business.

The prohibition laid down in Article 10 of the Directive

24.

    Article 10(c) of the Directive prohibits, in addition to capital duty, taxes in respectof registration or any other formality required before the commencement ofbusiness, to which a company may be subject by reason of its legal form. Thatprohibition is justified by the fact that even though the taxes in question are notlevied on capital contributions as such, they are nevertheless levied on account offormalities connected with the company's legal form, that is to say, on account ofthe instrument employed for raising capital, so that their continued existence wouldsimilarly risk frustrating the aims of the Directive (Case C-2/94 DenkavitInternationaal and Others [1996] ECR I-2827, paragraph 23).

25.

    That prohibition covers not only charges paid for the registration of newcompanies, but also duties payable by companies for the registration of increasesin capital since these, too, are levied on account of an essential formality connectedwith the legal form of the companies in question. While registration of an increasein capital is not, strictly speaking, a formality required before the commencementof business by a company, it is none the less necessary for the carrying on of thatbusiness (Fantask and Others, paragraph 22).

26.

    Since it is compulsory under Portuguese law to register increases in share capitalby a notarially attested act, it follows that this constitutes an essential formalityconnected with the legal form of the company and that it is necessary if thecompany is to carry on business.

27.

    Moreover, a tax in the form of a charge collected for drawing up a notariallyattested act recording a change in a company's name and registered office must beregarded as having the same characteristics as capital duty in so far as it iscalculated by reference to the company's share capital. Otherwise, it would bepossible for Member States, while refraining from imposing taxes on the raising ofcapital as such, to tax that capital whenever the company amended its articles ofassociation. That would enable the objective pursued by the Directive to becircumvented.

28.

    The answer should therefore be that a charge payable for drawing up a notariallyattested act recording an increase in share capital or a change in a company's nameor registered office is, where it amounts to a tax for the purposes of the Directive,in principle prohibited under Article 10(c) thereof.

The derogation provided for in Article 12(1)(e) of the Directive

29.

    The distinction drawn between taxes prohibited by Article 10 of the Directive andduties paid by way of fees or dues implies that the latter comprise only paymentsthe amount of which is calculated on the basis of the cost of the service rendered. Where the amount is wholly unrelated to the cost of the service in question or iscalculated, not by reference to the costs of the transaction for which it constitutesthe consideration, but to all the operational and capital costs incurred by thedepartment responsible for that transaction, a payment would have to be regardedas a tax falling exclusively within the prohibition laid down in Article 10 of theDirective (see Joined Cases C-71/91 and C-178/91 Ponente Carni and CispadanaCostruzioni [1993] ECR I-1915, paragraphs 41 and 42).

30.

    Furthermore, charges with no upper limit which increase directly in proportion tothe nominal value of the capital raised cannot, by their very nature, constituteduties paid by way of fees or dues within the meaning of the Directive. Eventhough in some cases the complexity of a registration may be linked to the amountof capital raised, the amount of the charge will generally bear no relation to thecosts actually incurred by the administrative body which provided the service (see,to that effect, Fantask and Others, paragraph 31).

31.

    In the present case, even though the charge is levied in accordance with a slidingscale, the amount of tax payable increases in direct proportion to the nominal valueof the capital raised. Moreover, given that in the case of values abovePTE 10 000 000 the charge is levied at the not inconsiderable rate of 0.3%, andthat no upper limit has been set, the amount payable could be substantial.

32.

    The answer should therefore be that 'fees or dues‘ within the meaning of Article12(1)(e) of the Directive do not cover a charge collected for drawing up anotarially attested act recording an increase in share capital or a change in acompany's name or registered office, such as the charge at issue in the mainproceedings, the amount of which increases in direct proportion to the share capitalraised and in respect of which there is no upper limit.

The direct effect of Article 10 of the Directive

33.

    The Court has consistently held that wherever the provisions of a directive appear,so far as their subject-matter is concerned, to be unconditional and sufficientlyprecise, they may be relied upon by an individual against the State in proceedingsbefore the national courts where the State has failed to transpose the Directive intonational law by the end of the period prescribed or has failed to do so correctly(see, inter alia, Case C-236/92 Comitato di Coordinamento per la Difesa della Cavaand Others [1994] ECR I-483, paragraph 8).

34.

    On that point, the Court has already observed that the prohibition laid down inArticle 10 of the Directive is expressed in sufficiently precise and unconditionalterms to be relied upon by individuals in the national courts in order to contest aprovision of national law which is contrary to the Directive (Case C-347/96 Solred[1998] ECR I-937, paragraph 29).

35.

    It must therefore be stated that Article 10 of the Directive creates rights on whichindividuals may rely in proceedings before the national courts.

Costs

36.

    The costs incurred by the Portuguese, Belgian, German, Spanish, French andAustrian Governments and by the Commission, which have submitted observationsto the Court, are not recoverable. Since these proceedings are, for the parties tothe main proceedings, a step in the proceedings pending before the national court,the decision on costs is a matter for that court.

On those grounds,

THE COURT (Sixth Chamber),

in answer to the questions referred to it by the Supremo Tribunal Administrativoby decision of 21 January 1998, hereby rules:

1.    Council Directive 69/335/EEC of 17 July 1969 concerning indirect taxes onthe raising of capital, as amended by Council Directive 85/303/EEC of 10June 1985, must be interpreted as meaning that charges constitute taxes forthe purposes of the directive where they are collected for drawing upnotarially attested acts recording a transaction covered by the directive,under a system where notaries are employed by the State and the chargesin question are paid in part to that State for the financing of its officialbusiness.

2.    A charge payable for drawing up a notarially attested act recording anincrease in share capital or a change in a company's name or registeredoffice is, where it amounts to a tax for the purposes of Directive 69/335, asamended by Directive 85/303, in principle prohibited under Article 10(c)thereof.

3.    'Fees or dues‘ within the meaning of Article 12(1)(e) of Directive 69/335,as amended by Directive 85/303, do not cover a charge collected for drawingup a notarially attested act recording an increase in share capital or achange in a company's name or registered office, such as the charge atissue in the main proceedings, the amount of which increases in directproportion to the share capital raised and in respect of which there is noupper limit.

4.    Article 10 of Directive 69/335, as amended by Directive 85/303, createsrights on which individuals may rely in proceedings before the nationalcourts.

KapteynMurray Ragnemalm

Delivered in open court in Luxembourg on 29 September 1999.

R. Grass

P.J.G. Kapteyn

Registrar

President of the Sixth Chamber

1: Language of the case: Portuguese.