Opinion of the Advocate-General
1. Does Council Directive 69/335/EEC of 17 July 1969 concerning indirect taxes on the raising of capital, as amended (hereinafter the Directive), preclude the levying on capital companies of a minimum corporation tax, payable in advance and regardless of their actual income?
I Facts and procedural background
2. The Directive, as the Court has noted, is aimed in particular at achieving harmonisation of the factors involved in the fixing and levying of capital duty in the Community, by means of the elimination of tax obstacles which interfere with the free movement of capital.
3. Article 4(1) provides as follows:
The following transactions shall be subject to capital duty:
(a) the formation of a capital company;
(b) the conversion into a capital company of a company, firm, association or legal person which is not a capital company;
(c) an increase in the capital of a capital company by contribution of assets of any kind;
(d) an increase in the assets of a capital company by contribution of assets of any kind, in consideration, not of shares in the capital or assets of the company, but of rights of the same kind as those of members ... .
4. Article 4(1)(e) to (h) of the Directive provides that the transfer from a non-member country to a Member State, or, in some circumstances, from one Member State to another, of the effective centre of management or the registered office of a capital company is also subject to capital duty.
5. Article 4(2) of the Directive lists the various transactions which may be subject to capital duty:
(a) an increase in the capital of a capital company by capitalisation of profits or of permanent or temporary reserves;
(b) 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;
(c) a loan taken up by a capital company, if the creditor is entitled to a share in the profits of the company;
(d) a loan taken up by a capital company with a member or a member's spouse or child, or a loan taken up with a third party, if it is guaranteed by a member, on condition that such loans have the same function as an increase in the company's capital.
6. Since the retention of other indirect taxes having the same characteristics as capital duty might frustrate the purpose of the measures provided for in this Directive, the last recital in its preamble proposes that those taxes be abolished. To this end, Article 10 provides as follows:
[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.
7. Article 12 provides an exhaustive list of charges which can be made notwithstanding the prohibition of Article 10.
8. In accordance with the Körperschaftsteuergesetz 1988 (Corporation Tax Law), as amended by the Abgabenänderungsgesetz (Tax Amendments Law) 1994 in Bundesgesetzblatt (Federal Law Gazette) No 680/1994 (hereinafter the KSG 1988), corporations whose management or registered office is in Austria have unlimited liability to corporation tax. This is charged at a rate of 34% of income received in one calendar year (Paragraph 7 of the KSG 1988). In the version in force at the material time, Paragraph 24(4) of that Law provided as follows:
Capital companies with unlimited tax liability shall ... pay a minimum tax of ATS 3 750 in respect of each full calendar quarter during which their liability to tax is unlimited. The minimum tax shall, in so far as it exceeds actual liability to corporation tax, be taken as an advance within the meaning of Paragraph 45 of the Einkommensteuergesetz 1988 on the amount of actual liability to corporation tax during the assessment period or the seven following assessment periods, to the extent that actual liability to corporation tax exceeds the minimum tax arising under the first sentence in respect of that assessment period.
9. The limitation to seven assessment periods of the facility to set off minimum tax was subsequently removed in respect of the years 1994 to 1996.
10. Minimum corporation tax applies to capital companies in liquidation until they cease to exist. In accordance with a notice issued by the defendant in the main proceedings, limited liability trading company P. P. Handels GmbH was required to pay ATS 15 000 corporation tax for 1996 (hereinafter the national tax), though the company did not receive any income for that year. The applicant in those proceedings, who had been appointed insolvency administrator for the company on 19 March 1996, challenged that notice before the Austrian courts. On 17 March 1999, the Verwaltungsgerichtshof, Wien (Administrative Court, Vienna) referred the following question to the Court:
Does Article 10 of Council Directive 69/335/EEC of 17 July 1969 concerning indirect taxes on the raising of capital preclude the levying for 1996 of the tax provided for by Paragraph 24(4) of the 1988 Körperschaftsteuergesetz (Corporation Tax Law) as amended in BGBl. (Bundesgesetzblatt, Federal Law Gazette) No 680/1994?
11. Observations were submitted by the defendant in the main proceedings, Austria, Portugal, and the Commission.
II Opinion
12. In its order for reference, the referring court cited the judgment in Ponente Carni, in which the Court held that an annual charge for the registration of capital companies, or any other charge imposed in respect of one of the essential formalities for [the] formation of such companies, falls within the prohibition laid down by Article 10 of the Directive. It therefore wondered if, for capital companies whose annual income is less than ATS 44 118, the national tax should be regarded as a duty unrelated to income which in its economic effects, amounts to a duty imposed on account of formalities connected with the company's legal form, in other words, on account of the instrument employed for raising capital.
13. The order for reference is based on the presumption that the national tax is an indirect tax within the scope of application of the Directive. It is true that, according to settled case-law, the nature of a tax, duty or charge must be determined by the Court, under Community law, according to the objective characteristics by which it is levied, irrespective of its classification under national law. The Court should therefore examine the question referred in the light of the objective characteristics of the national tax.
14. As the Court noted in Nonwoven, the various transactions which, in accordance with Article 4(1) of the Directive, must be subjected to capital duty are all transactions involving the transfer of capital or assets to a capital company in the taxing Member State[, while] the categories of transaction which, under Article 4(2), may be subject to capital duty all result in an effective increase in the company's capital or assets. Like the tax at issue in that case, the national tax at issue in the present proceedings does not presuppose any transaction involving the movement of capital or assets and thus does not correspond to any of the taxable transactions mentioned in Article 4 of the Directive to which Article 10(a) and (b) refers.
15. As to Article 10(c), it is clear that, though levied exclusively on capital companies, the national tax is not imposed 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. Payment of the national tax is not required for inclusion on the registry of companies, and non-payment, as the Commission has pointed out, has no direct consequence on the registration of a company, such as exclusion from the registry. Corporation tax is levied irrespective of any transaction or formality on all corporations whose management or registered office is in Austria, in accordance with Paragraph 1(2) of the KSG 1988, regardless of their legal form.
16. That liability to minimum tax exists even in the absence of any income is a legal consequence of the simple fact of being a capital company with unlimited tax liability. Where the tax has to be paid by a capital company with no corresponding income, it may operate, in effect, as a tax on capital. In no circumstances does it acquire the characteristics of an indirect tax. As the Commission explained, indirect taxes are usually distinguished by the fact that the burden is passed on to others and that they arise from a specific act, like a sale or the execution of some legal transaction.
17. The annual minimum corporation tax imposed on capital companies is, according to its terms, an advance on the amount of their potential liability to corporation tax in a given year. It is therefore not a duty bearing no relation to income, as the national court has suggested; in accordance with Paragraph 24(4) of the KSG 1988, it is only where the company's actual income fails to surpass the threshold of ATS 44 118 over several years, or where the company goes into liquidation, that the amount of the national tax cannot be set off against actual tax liability. The fact that in such circumstances the advance cannot be set off does not, in my opinion, change the nature of the tax for the purposes of the Directive; it remains a direct tax which is payable in respect of income imputed to a capital company, the amount of which actually accruing to the State depends, in the long run, on that company's economic performance. Where the threshold figure is exceeded, the national tax has no effect whatsoever on the amount of tax a capital company pays.
18. In Denkavit, the Court explained the prohibition of Article 10(c) as being 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. It is clear that Paragraph 24(4) of the KSG 1988 does not involve any formalities of the kind envisaged by Article 10(c) of the Directive as thus explained. It does not therefore have the same characteristics as the capital duty or the stamp duty on securities, nor does it involve an increase in the rate of capital duty paid or a fresh levying of such duty. I am therefore of the opinion that it is outside the scope of the prohibition of Article 10 of the Directive. As a result, Article 12 of the Directive does not come into play in the present proceedings.
III Conclusion
19. In the light of the foregoing, I recommend to the Court that it answer the question referred to it by the Verwaltungsgerichtshof, Wien (Administrative Court, Vienna) as follows:
Article 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, does not preclude the levying on capital companies of a tax such as the minimum corporation tax payable as an advance on the amount of actual liability to corporation tax.
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