Case C-285/07, A.T. v Finanzamt Stuttgart-Körperschaften

This case concerned the question whether art. 8(1) and (2) of Directive 90/434 (the Merger Directive) precluded legislation of a Member State under which, in consequence of an exchange of shares, the shareholders of the acquired company were taxed on the capital gains arising from the transfer and the capital gain was deemed to correspond to the difference between the initial cost of acquiring the shares transferred and their market value, unless the acquiring company carried over the historical book value of the shares transferred in its own tax balance sheet.

AT was a German company which had a controlling holding (89.5%) in a German GmbH. Since financial markets rules required it to divest itself of that holding it transferred its shares in the GmbH during the course of 2000 to a French company, in exchange for new shares amounting to 1.47% of the capital issued by that company. The French company valued the German GmbH shares in its trading and tax balance sheets at the market value ascribed to them in the transfer contract instead of at their lower book value. AT sought to value the shares which it had been allotted in the French company at the book value of the GmbH shares for which the French company’s shares had been exchanged. German tax provisions imposed a particular qualifying condition that share exchanges had to meet in order for any charge to capital gains tax to be deferred. The transaction in question did not fulfil that condition. German tax authorities considered, therefore that A.T. was obliged to attribute the market value used by the French company in valuing the GmbH shares and therefore treated the share exchange between AT and the French company as giving rise to a taxable capital gain corresponding to the difference between the initial cost of acquiring the shares in the GmbH and their market value. AT appealed against the tax assessment notices.

Aim of the Merger Directive
By imposing that fiscal neutrality requirement with regard to the shareholders of the acquired company, Directive 90/434 aimed to ensure that an exchange of shares concerning companies from different Member States was not hampered by restrictions, disadvantages or distortions arising in particular from the tax provisions of the Member States. The Court however stressed that that fiscal neutrality requirement was not unconditional. Under art. 8(2) of Directive 90/434, the Member States were to make the application of art. 8(1) conditional upon the shareholder’s not attributing to the securities received a value for tax purposes higher than the value attributed to the securities exchanged immediately before the exchange of shares.

No discretion Member States
The Court held that the mandatory and clear wording of art. 8(1) and (2) of Directive 90/434 offered no indication whatsoever that the Community legislature intended to leave Member States discretion with regard to implementation which would permit them to make the fiscal neutrality provided for in favour of the shareholders of the acquired company subject to additional conditions. According to the Court, to leave the Member States such discretion would be contrary to the very objective of the directive.

Article 11(1)(a) of Directive 90/434
The Court reiterated that the Member States must grant the tax advantages provided for under Directive 90/434 in respect of the exchanges of shares referred to in art. 2(d) thereof, unless those operations had as their principal objective or as one of their principal objectives tax evasion or tax avoidance within the meaning of art. 11(1)(a) of the directive. It was, however, only by way of exception and in specific cases that Member States might, pursuant to art. 11(1)(a) of Directive 90/434, refuse to apply or withdraw the benefit of all or any part of the provisions of the directive. In order to determine whether the planned operation had such an objective, the competent national authorities could not confine themselves to applying predetermined general criteria but must carry out a general examination of each particular case (see
Case C-28/95 Leur-Bloem [1997] and Case C‑321/05 Kofoed [2007]).

Article 11(1)(a) of Directive 90/434 could not therefore provide a basis for tax legislation of a Member State, such as that at issue in the main proceedings, which refused in a general way to grant the tax advantages provided for under Directive 90/434 in respect of the exchange of shares operations covered by that directive, solely on the ground that the acquiring company had not, in its fiscal balance sheet, valued the shares transferred at their historical book value, and, in consequence, such legislation could not be regarded as compatible with that directive.


Infringement Art. 8 Merger Directive
It followed that article 8(1) and (2) of Directive 90/434 precluded legislation of a Member State under which, in consequence of an exchange of shares, the shareholders of the acquired company were taxed on the capital gains arising from the transfer and the capital gain was deemed to correspond to the difference between the initial cost of acquiring the shares transferred and their market value, unless the acquiring company carried over the historical book value of the shares transferred in its own tax balance sheet.


Text of judgment