Opinion of Advocate General Jääskinen delivered on 10 July 2012

A – European Union law

3. The fourth and sixth recitals to Directive 90/434 provide:

‘Whereas the common tax system ought to avoid the imposition of tax in connection with mergers, divisions, transfers of assets or exchanges of shares, while at the same time safeguarding the financial interests of the State of the transferring or acquired company;

…

Whereas the system of deferral of the taxation of the capital gains relating to the assets transferred until their actual disposal, applied to such of those assets as are transferred to that permanent establishment, permits exemption from taxation of the corresponding capital gains, while at the same time ensuring their ultimate taxation by the State of the transferring company at the date of their disposal’.

4. Article 2 of Directive 90/434 states:

‘For the purposes of this Directive:

…

1. “transfer of assets” shall mean an operation whereby a company transfers without being dissolved all or one or more branches of its activity to another company in exchange for the transfer of securities representing the capital of the company receiving the transfer;

…

1. “transferring company” shall mean the company transferring its assets and liabilities or transferring all or one or more branches of its activity;

2. “receiving company” shall mean the company receiving the assets and liabilities or all or one or more branches of the activity of the transferring company;

…’

5. Article 4 of Directive 90/434 states:

‘1.

A merger or division shall not give rise to any taxation of capital gains calculated by reference to the difference between the real values of the assets and liabilities transferred and their values for tax purposes.

…

2.

The Member States shall make the application of paragraph 1 conditional upon the receiving company’s computing any new depreciation and any gains or losses in respect of the assets and liabilities transferred according to the rules that would have applied to the transferring company or companies if the merger or division had not taken place.

3.

Where, under the laws of the Member State of the transferring company, the receiving company is entitled to have any new depreciation or any gains or losses in respect of the assets and liabilities transferred computed on a basis different from that set out in paragraph 2, paragraph 1 shall not apply to the assets and liabilities in respect of which that option is exercised.’

6. According to Article 9 of Directive 90/434, Articles 4, 5 and 6 apply to the transfer of assets.

7. Article 33(2)(a) and (d) of Fourth Council Directive 78/660/EEC of 25 July 1978 based on Article 54(3)(g) of the Treaty on the annual accounts of certain types of companies⁽³⁾ states:

1. Where paragraph 1 is applied, the amount of the difference between valuation by the method used and valuation in accordance with the general rule laid down in Article 32 must be entered in the revaluation reserve under “Liabilities”. The treatment of this item for taxation purposes must be explained either in the balance sheet or in the notes on the accounts.

   For purposes of the application of the last subparagraph of paragraph 1, companies shall, whenever the amount of the reserve has been changed in the course of the financial year, publish in the notes on the accounts inter alia a table showing:

   • the amount of the revaluation reserve at the beginning of the financial year,

   • the revaluation differences transferred to the revaluation reserve during the financial year,

   • the amounts capitalised or otherwise transferred from the revaluation reserve during the financial year, the nature of any such transfer being disclosed,

   • the amount of the revaluation reserve at the end of the financial year.

   …

2. Save as provided under (b) and (c) the revaluation reserve may not be reduced.’

B – National law

8. Article 2(2) of Legislative Decree No 544 of 30 December 1992 (‘Legislative Decree No 544/1992’) implementing Directive 90/434, states: ‘None of the transfers [of activities or branches of activity] referred to in point (c) [of Article 1] shall constitute the realisation of capital gains or losses: however the last value attributed for tax purposes to the activity, or branch of activity, transferred shall constitute the value attributed for tax purposes to the share capital received. The difference between the value of the shares received and the last value, as attributed for the purposes of taxing income, of the assets transferred shall form no part of the taxable income of the contributing undertaking or company so long as it has not been realised or distributed to shareholders. If the shares received are entered in the balance sheet at a value higher than the book value of the transferred activity, the difference must be entered under an appropriate heading and shall form part of the taxable income in the case of distribution …’.⁽⁴⁾

9. Article 1 of Legislative Decree No 358 of 8 October 1997 (‘Legislative Decree No 358/1997’) states:

‘1.

In the case of capital gains accruing from the transfer of businesses owned for a period of no less than three years and determined in accordance with the criteria laid down in Article 54 of the Consolidated Version of the Law on the Taxation of Revenue, approved by Decree No 917 of the President of the Republic of 22 December 1986, a tax may be applied, by way of a substitute for the taxes on revenue, at a rate of 19%.

…

2.

For application of the substitute tax, the intention of exercising that option must be indicated in the revenue declaration for the tax period during which the capital gains have been realised.’

10. Article 4(2) of Legislative Decree No 358/1997 states:

‘In lieu of the application of paragraph 1 [of Article 4 of Legislative Decree No 358/1997], the persons specified therein may, in the act of transfer, opt for application of the Consolidated Version of the Law on the Taxation of Revenue, approved by Decree No 917 of the President of the Republic of 22 December 1986, and of Article 1 of the present Decree. That option may be exercised also in respect of the transfers referred to in Article 1 of Legislative Decree No 544 of 30 December 1992 on measures for the implementation of the Community Directives relating to the tax treatment of mergers, divisions, transfers of assets and exchanges of shares.’

A – Admissibility of the question referred

21. The order for reference seeks guidance on the interpretation of Articles 2, 4 and 8(1) and (2) of Directive 90/434. However, I am inclined to find that the question referred by the national court is inadmissible.

22. According to settled case-law, information provided in a reference for a preliminary ruling does not only serve to enable the Court to provide answers that are useful to the national court; it must also enable the governments of the Member States, and other interested parties, to submit observations in accordance with Article 23 of the Statute of the Court of Justice.

23. For those purposes, it is first necessary for the national court to elaborate the factual and legal context of the questions, and at the very least, explain the factual circumstances on which those questions are based. Secondly, the order for reference must set out the precise reasons why the national court is unsure as to the interpretation of the relevant EU law provisions, and why it considered it necessary to refer questions to the Court for a preliminary ruling.

24. As a consequence, it is essential for the national court to provide, at the very least, some explanation of the reasons for the choice of the EU law provisions which require interpretation, and of the link between those provisions and the national legislation applicable to the dispute in the main proceedings.⁽⁶⁾

25. On the other hand, preliminary questions enjoy a presumption of relevance. The Court may refuse to rule on a question referred by a national court only where it is quite obvious that the interpretation of EU law that is sought bears no relation to the actual facts of the main action or its purpose, where the problem is hypothetical, or where the Court does not have before it the factual or legal material necessary to give a useful answer to the questions submitted to it.⁽⁷⁾

26. I would start by observing that the question referred by the national court includes a request for interpretation of Article 8(1) and (2) of Directive 90/434. However, according to Article 9 of that directive, Article 8 is not applicable to transfer of assets. The preliminary reference provides no explanation as to why Article 8 is relevant to the main proceedings.

27. Secondly, according to the order for reference, a transferring company is taxed on the capital gain arising from the transfer of the assets and that capital gain is deemed to correspond to the difference between the initial cost of acquiring the shares transferred and their current market value. A transferring company could avoid paying capital gains tax if it carried over in its own balance sheet a special reserve fund equivalent to the capital gains arising from the transfer.

28. However, this description of the relevant national provision does not correspond with the legislative text. The interpretation of national law provided in the order for reference is also contested by the Italian Government and the Commission.

29. In fact, Article 2(2) of Legislative Decree No 544/1992, the only national provision referred to in the preliminary question, provides:

• that the transfer of assets does not constitute a realisation of gains or losses,

• that the difference between the value of the shares received and the last tax value of the transferred assets does not, before its realisation or distribution, contribute to the generation of taxable income of the transferring company, and

• that if shares are entered in the balance sheet at a higher value than the last book value of the transferred assets, then the difference must be entered in an ad hoc accounting heading and contribute to the generation of taxable income if distributed.

30. Hence, the relevant national provision does not impose taxation as a consequence of transfer of assets. It would also appear that 3D I does not claim that the asset transfer in issue has in itself triggered any liability to pay tax. If I have understood their argument correctly, they chose to pay substitution tax because they took the view that Italian law carried an accounting obligation which was unattractive.

31. According to established case-law it is not for the Court, in the context of a reference for a preliminary ruling, to rule on the interpretation of national provisions or to decide whether the referring court’s interpretation thereof is correct.⁽⁸⁾ The Court must take account, under the division of jurisdiction between the EU courts and the national courts, of the factual and legislative context, as described in the order for reference, in which the questions put to it are set.⁽⁹⁾

32. Nevertheless, in the present case I am inclined to conclude that the mismatch between the wording of the preliminary question on the one hand, and the texts of the national provision and the observations of the parties, on the other, render the preliminary reference of a hypothetical character both in fact and in law. It is, of course, open to the Court to simply leave it to the Commissione Tributaria Regionale di Milano to check the soundness of its initial interpretation of national law,⁽¹⁰⁾ after the Court has provided answers to the questions referred. However, this may be insufficient to cure the hypothetical nature of the question.

33. Thirdly, in so far as the preliminary question purports to seek guidance on the compatibility of Italian law with the prohibition under EU law of discrimination in tax treatment on the basis of company residence, the question sent by the national court makes no explicit reference to this issue. However, the part of the order for reference explaining the grounds for referring the question mentions a difference in treatment that would ‘appear’ to be unconstitutional. This is said to be so because the contested system relates only to intra-Union transfers to the exclusion of purely internal transfers. The national referring court places reliance on a series of judgments of the Court of Justice, including X and Y, on which a substantial part of 3D I’s case is based.⁽¹¹⁾

34. Here my concern relates to insufficient elaboration of legal context, and more particularly, the absence of linkage between relevant provisions of national law and EU internal market law principles on equal treatment and non-discrimination. While it is stated in the order for reference that 3D I was being subjected to a system that was inapplicable to transfers which took place solely within Italy, there was debate at the hearing on the correct interpretation of national law on this issue as well. 3D I argued that Italian law subjected them to unfavourable treatment when compared with purely internal asset transfers, while the Italian Government and the Commission argued a contrary interpretation of national law and said that there was no situation where internal transfer of assets were treated more favourably than intra-Union transfers (it being understood that for the former the principle of fiscal neutrality was introduce later than for the latter).⁽¹²⁾

35. Manifestly, this is not an issue on which the Court of Justice is able to rule. Moreover, in any dispute in which breach of the prohibition on discriminatory treatment is alleged, the national court must supply the Court with a clear description of the national legal situation. If this is absent it is impossible for the Court to decide whether the national rules are incompatible with EU law. This has also left me in doubt as to whether the order for reference contains the necessary elements to enable the Court to give an interpretation of EU law in the domain of non-discrimination which will be helpful to the national court.⁽¹³⁾

36. In the alternative, should the Court consider the preliminary question admissible, I am of the opinion that it needs to be reformulated so that it only concerns the compatibility of Article 2(2) of Decree Law No 544/1992 with Articles 2, 4 and 9 of Directive 90/434. As I have already mentioned, Article 8 of Directive 90/434 is not relevant to the main proceedings.

B – The scope and objective of Directive 90/434

37. I would start by recalling the limits on the objectives of Directive 90/434. As has been observed by both the Commission and the Italian Government, Directive 90/434 does not establish a system of exempting from taxation capital gains that result from intra-Union mergers, divisions, transfers of assets, and exchanges of shares. Rather, its objective is to achieve fiscal neutrality by creating a common system of deferral of taxation of capital gains relating to a cross-border merger, division, transfer of assets or share exchange. Taxation is not to take place until the date of the actual disposal of the shares or assets.⁽¹⁴⁾

38. The idea under-pinning Directive 90/434 is to avoid triggering taxation of unrealised capital gains and (otherwise) untaxed reserves by mere reference to the fact that an intra-Union transaction of the kind mentioned in Directive 90/434 has taken place. The problem was neatly described by Advocate General Sharpston in A.T. where she observed as follows:

‘When the assets of one company are transferred to another in the course of a corporate restructuring operation, that can result in a taxable event. The transfer constitute a disposal for the purposes of capital gains tax and, if those assets have increased in value since the transferor originally acquired them a chargeable gain may arise. Some Member States provide relief by allowing deferral of any immediate charge to tax since the assets are not in fact realised. However, relief is rarely granted where the transfer is to a non-resident company, for fear that the payment of tax may be avoided altogether rather than simply being deferred.’⁽¹⁵⁾

39. The fourth recital to Directive 90/434 reflects this, by stating that ‘the common tax system ought to avoid the imposition of tax in connection with mergers’ (my emphasis) while the sixth recital refers to ‘the system of deferral of the taxation of the capital gains relating to the assets transferred until their actual disposal … while at the same time ensuring their ultimate taxation by the State of the transferring company at the date of their disposal’. This, so called, principle of fiscal neutrality relates solely to the tax treatment at the time of a cross-border merger, division, transfer of assets, or share exchange, and at no other stage. Fiscal neutrality applies to transfer of assets of the kind in issue in the main proceedings by virtue of the combined effects of Articles 4 and 9 of Directive 90/434.

40. There is therefore no question of 3D I being able to rely on Directive 90/434 in order to challenge the levying, by Italy, of tax at the time of the realisation of a capital gain. The entitlement of the Member States to tax realised capital gains is expressly recognised in the sixth recital to Directive 90/434. The intra-Union nature of a transaction giving rise to a capital gain is irrelevant to the tax applicable at the time of disposal of the assets or the shares, as the case may be.

41. Further, the objectives of Directive 90/434, and in particular Article 4 thereof, are limited in a manner that is relevant to the legal issues arising in the main proceedings. That is, Article 4 is principally directed to the manner in which the receiving company, in this case the Luxembourg company, values the assets that have been transferred. The exclusion of capital gains from being taxed, at the time of the transfer, which is provided for in Article 4(1), is made subject, expressly, in Article 4(2) to ‘the receiving company’s computing any new depreciation and any gains or losses in respect of the assets and liabilities transferred according to the rules that would have applied to the transferring company or companies if the merger or division had not taken place’.

42. However, Directive 90/434 is silent on the valuation for tax purposes by the Member State of residence of the transferring company, in this case Italy, of the shares that are received in exchange for a transfer of assets. In other words, Member States are entitled to vest transferring companies with a discretion in the valuation of the shares received and to be recorded in their accounts while Member States are not entitled to vest receiving companies with the same discretion, if the latter want to benefit from fiscal neutrality. This is regulated by Article 4(2) and (3) of Directive 90/434.

43. The Commission has attempted, on two occasions, to ensure that Directive 90/434 addresses the valuation of shares received by transferring companies in order to avoid economic double taxation of the ‘same’ capital gain. It did so in 1969, when it put forward what became, much later, Directive 90/434. This proposal included a provision according to which the shares of the receiving company could be attributed in the balance sheet of the transferring company with a value corresponding to the real value of the transferred assets without this leading to taxation.⁽¹⁶⁾ In 2003 the Commission proposed a similar amendment to Directive 90/434⁽¹⁷⁾ that was not adopted.⁽¹⁸⁾

44. Hence, I find 3D I’s argument unpersuasive, in so far as it supports the position that taxation of its eventual capital gain should be tied to, and deferred to, the moment when the receiving company disposes of the transferred assets. The legislature has aimed, with Directive 90/434, neither at relieving any economic double taxation in the context of transfer of assets, nor at enabling the transferring company to distribute untaxed capital gains to its shareholders.

45. In conclusion, Directive 90/434 imposes limited obligations on Member States with respect to companies that are transferring assets to a company resident in another Member State and receiving shares in exchange. That is, both transferring companies and receiving companies must have the option of taking advantage of fiscal neutrality as guaranteed by Article 4(1) of the directive. But this is where Member State obligations end. Moreover, there is no requirement for transferring companies to value shares received in any particular way, proposals to this effect having been rejected, while Article 4(2) and (3) impose clear rules in this regard on receiving companies.

C – Compatibility of Article 2(2) of Legislative Decree No 544/1992 with Directive 90/434

46. The guarantee of fiscal neutrality contained in Article 4 of Directive 90/434 is not absolute. As pointed out in the written observations of the Commission and the Italian Government, it is subject to the transaction respecting continuity in tax values.

47. As the Commission pointed out in its written observations, Article 4(2) of Directive 90/434 imposes this requirement for the receiving company for good reasons. It is done to avoid a situation whereby fiscal neutrality might generate an exoneration of taxation on capital gains, when Directive 90/434 merely aims at deferring taxation until a capital gain is realised. As I have already explained, for the receiving company, Article 4(2) and (3) of Directive 90/434 impose the principle of continuity in the valuation of the assets transferred for the purposes of computing any new depreciation and any gains or losses in respect of assets and liabilities. This is a pre-condition of fiscal neutrality.

48. This is not the case, however, for transferring companies such as 3D I who have received shares in exchange for an asset. As I have explained above, Directive 90/434 does not concern the question of the valuation of the shares of the receiving company by the transferring company for tax and/or accounting purposes.

49. However, the principle of fiscal neutrality provided by Article 4(1) of Directive 90/434 equally applies to the transferring company. In my opinion this excludes the taxation of capital gains of the transferring company merely because of the transfer of assets. This said, the national legislator retains a discretion to decide whether the transferring company is bound by the principle of continuity between the tax and/or book values of the transferred assets and the value it attributes to the shares it has received as consideration, or whether the company may choose to use other values. The Italian legislation opted for the latter.

50. As I have already noted, 3D I elected to enter, in its books, the shares that it received in exchange for the transfer of its branch at a value higher than the value for tax purposes of that asset, and to exercise the option provided by Italian law to pay substitution tax. 3D I followed this course because entering the difference between the (higher) value it attributed to the shares and the (lower) book value of the branch in their balance sheet, as a reserve fund, was less attractive to them. This course of action would have generated taxable income in the event of distribution.

51. As was explained at the hearing by the Italian Government and the Commission, and admitted by 3D I, the obligation in the third sentence of Article 2(2) to reflect the difference in the value between the asset transferred and the shares received in 3D I’s accounts is a simple function of the accounting imperatives that necessarily follow from the share valuation.

52. Moreover, I would add that the obligation to create a special reserve fund in the ‘Liabilities’ column of a balance sheet, when an asset re-evaluation occurs, corresponds with the provision on a revaluation reserve in Article 33(2)(a) and (d) of Fourth Council Directive 78/660. In other words, the accounting requirment of Italian law subject to challenge by 3D I, and which appears in the third sentence of Article 2(2) of Legislative Decree No 544/1992, seems to be in harmony with the requirements of Directive 78/660.

53. Hence, it was 3D I’s own decision to value the shares in the manner here described. Article 2(2) of Legislative Decree No 544/1992 did not impose any obligation to value the shares in the manner employed by 3D I. Nor did any valuation option in itself lead to taxation of the transfer of assets. According to the second sentence of Article 2(2) of Legislative Decree No 544/1992, taxation takes place only as a consequence of the realisation or distribution of the difference between the tax values.

54. As has been pointed out by the Commission, Directive 90/434 merely imposes a requirement on the Member State of the transferring company to provide the option of fiscal neutrality of asset transfers. 3D I elected not to take advantage of the Directive 90/434 compatible scheme offered by Italian law, and for its own advantage. By so doing it was able to pay subsitution tax, levied at a rate of 19%, rather than the 33% that would have been otherwise applicable upon realisation or distribution⁽¹⁹⁾ of the capital gain.

55. Therefore, as pointed out in the written observations of the Commission, the facts to hand are entirely distinguishable from those considered by the Court in A.T., a case concerning exchange of shares. There the effect of the German law concerned was to deprive German resident transferring companies of the option to complete an exchange of shares in a fiscally neutral manner. This was so because under the German legislation in issue, the transferring company was only entitled to continue to use the book value of the shares transferred to them if the acquiring company in another Member State also used the book value for the share holding received. In A.T., the acquiring (French) company had valued the holding not at its book value, but at its market value. On these facts, fiscal neutrality in Germany was clearly subject to ‘additional conditions’⁽²⁰⁾ appertaining to reciprocity that were not envisaged by Directive 90/434. For the reasons that I have given above, the accounting requirements imposed by Italian and EU law are in no way analogous to the German legislation impugned in A.T.

56. In the present case 3D I has not been compelled to choose between taxation that was unlawful under EU law, or another, less favourable, course of action. Therefore, in my opinion the company cannot invoke Directive 90/434 as a basis for its claims against the Italian state.⁽²¹⁾