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Selected jurisprudence of the Court of Justice of the European Union on the free movement of capital
Selected jurisprudence by topicCase Law related to special rights/"golden shares"In strategically sensitive sectors or in the case of important/large national companies ("national champions"), some Member States' governments have felt the need to retain control of privatised companies and resorted to holding on to special rights in them. These rights are special in the sense that they go beyond the rights associated with normal shareholding. One means to install such special rights is a "golden share", i.e. a preferred stockholding in a company that a public authority retains after privatisation. But over time, the term "golden share" has become a generic term for special rights in general, whether those rights are associated with State shareholding or not.
The first judgment concerning golden shares was delivered on 23 May 2000 in a case against Italy (case C-58/99). The case concerned a framework privatisation law and related decrees ensuring government control in companies of the energy and telecommunications sector. On 4 June 2002, the Court ruled on the cases brought against Portugal, France and Belgium. In the case of Portugal (case C-367/98), the provisions at issue were the framework laws and regulations concerning the privatisation of undertakings in the banking, insurance, energy and transport sectors. The case of France (case C-483/99) concerned a decree vesting in the state a special share in Société Nationale Elf-Aquitaine, which supplies France with petroleum products. The case against Belgium (case C-503/99) concerned two Royal Decrees which vested in the state golden shares in Distrigaz and Société Général de Transport par Canalisations. It provides valuable guidance on proportionality considerations regarding special rights. On 23 May 2003 the Court ruled on cases brought against Spain and the United Kingdom. The case of Spain (case C-463/00) concerned provisions of a privatisation law and Royal Decrees, which gave government control in Repsol and Endesa (energy), Telefónica (telecommunications), Argentaria (banking) and Tabacalera (tobacco). In the case of the United Kingdom, (case C-98/01) the provision at issue pertained to the Articles of Association of Britain’s biggest airport operator, British Airport Authorities (BAA), which owns e.g. Heathrow and Stansted. In 2005, the Court ruled on a case brought against Italy (case C-174/04) for the suspension of voting rights attached to shareholdings exceeding 2% to public undertakings investing in gas and electricity companies. In a case brought against Germany (C-112/05), the Court ruled in 2007 on a tailor-made state measure (the VW-law) designed to give public authorities special rights in Volkswagen AG, which they would not normally have under German company law. (read more) In 2008, the Court ruled on cases brought against Italy and Spain. In Case C-326/07, the Court ruled against derogation from ordinary company law that ensured public authorities' participation beyond what their status as shareholders would normally allow. In the two cases brought against Spain (C-274/06 and C-207/07), which concerned the highly topical issue of screening investment in the energy sector, the Court established that a system of prior authorisation cannot in all cases guarantee secure energy supplies and imposing specific obligations on energy companies can represent a more proportionate means safeguarding the energy supply than a straightforward restriction of voting rights. In 2010, in a case brought against Portugal (C-171/08), the Court outlawed special rights, including the right to veto management decisions, which were attributed to Portuguese state entities as shareholders of a privileged class of shares following the privatisation of Portugal Telecom. In its decision, the Court confirmed many of the "golden rules on golden shares" established in its earlier jurisprudence on special rights and highlighted in particular that the free movement of capital includes both, 'direct' investments as well as 'portfolio' investments. Case Law related to Bilateral Investment Treaties (BITs)In three judgements, the CJEU sided with the Commission by ruling that Austria (case C‑205/06), Sweden (case C-249/06) and Finland (case C-118/07) did not take appropriate steps required by ex-Article 307(2) EC [now Article 351 TFEU] to remove incompatibilities of their pre-accession BITs provisions on free transfers related to investment (transfer clause) with regard to restrictive measures the Council may take under the Treaty Articles on the free movement of capital ex-Articles 57(2), 59 and 60 (1) EC. Case Law related to direct taxationArt. 65(1a) TFEU allows for different tax treatment of non-residents and foreign investment, but with the reservation that this must not represent a means of arbitrary discrimination or a disguised restriction in the sense of Art. 65(3) TFEU. The Commission's Directorate-General for Internal Market and Services (DG MARKT) and the Directorate-General Taxation and Customs Union (DG TAXUD) co-operate for issues of direct taxation (e.g. taxation of dividends and exit tax). DG TAXUD publishes a comprehensive list of CJEU cases related to direct taxation. Of particular interest from the perspective of free movement of capital are the judgments in the following cases:
In this decision, the CJEU clarified that with regard to the movement of capital between Member and non-member States, Article 63 TFEU applies irrespective of the category of capital movement. Furthermore, the Court highlighted that “even if the liberalisation of the movement of capital with third countries may pursue objectives other than that of establishing the internal market…it is clear that, when the principle of free movement of capital was extended … to movement of capital between third countries and the Member States, the latter chose to enshrine that principle in that article and in the same terms for movements of capital taking place within the Community and those relating to relations with third countries.” Against this background, the Court explicitly rebutted any counter-argument based on reciprocity or the desire to retain a favourable negotiating position with regard to third countries. See also: EFTA Court case E-1/04 Fokus Bank ASA. Case law related to the acquisition of real estate and secondary residencesOf particular interest from the perspective of free movement of capital are the CJEU judgments in the following cases : C-182/83 Fearon, C-302/97 Konle, C-423/98 Albore, C-515/99 Reisch, C-300/01 Salzmann, C-452/01 Ospelt, C-370/05 Festersen. The acquisition of real estate (including secondary residences and agricultural real estate) represents a capital movement . The CJEU has established that the free movement of capital, as a fundamental principle of the Treaty, may be restricted only by national rules which are justified by reasons referred to in Art. 65(1) TFEU or by overriding requirements of the general interest, provided that the national legislation is suitable for securing the objective which it pursues and does not go beyond what is necessary in order to attain it, so as to accord with the principle of proportionality. See also Art. 65(3) TFEU. The CJEU ruled e.g. in case C-300/01, Salzmann, §44, that "…it is settled case-law that restrictions on the establishment of secondary residences in a specific geographical area, which a Member State imposes in order to maintain, for town and country planning purposes, a permanent population and an economic activity independent of the tourist sector, may be regarded as contributing to an objective in the public interest." It should also be noted that Art. 18 TFEU provides that "Within the scope of application of the Treaties, and without prejudice to any special provisions contained therein, any discrimination on grounds of nationality shall be prohibited". Chronological overview of selected jurisprudence
The Court found that by virtue of the legislation that lays down the criteria for the exercise of special powers in privatised companies referred to in Article 2 of decree-law 332/1994 operating, among others, in the telecommunications and energy sectors, Italy had failed to fulfil its obligations under Treaty rules on the free movement of capital and the right of establishment. In its decision, the Court noted that national legislation which applies irrespective of the size of the holding which the shareholder has in a company may fall within the ambit of both Article 49 and 63 TFEU, and, in this context, the purpose of that legislation needs to be taken into account. The European Commission decided to close the infringement procedures against Italy in view of the measures taken by Italy on 20 May 2010 to comply with the Court ruling. Commission's press releases: IP/09/1755, IP/06/859, IP/05/1270, IP/03/177, IP/98/1134, IP/98/717
CJEU press release: CJE/08/54 This Court decision regards a law amending functions of Spanish electricity and gas regulator. The Court found that legislation not intended to apply only to shareholdings conferring a definite influence may fall within the scope of both, Article 49 TFEU on freedom of establishment and Article 63 TFEU on free movement of capital. In addition, the Court established that a system of prior authorisation cannot in all cases guarantee secure energy supplies and imposing specific obligations on energy companies can represent a more proportionate means safeguarding the energy supply than a straightforward restriction of voting rights. In the follow-up to this decision, the European Commission has decided to remind Spain of its obligation to comply with a Court of Justice ruling of 17 July 2008, which found that regarding certain provisions of the legislation that extends the powers of the Comisión Nacional de Energía (CNE), in so far as they implement a system of prior administrative approval, Spain had failed to fulfil its obligations under EC Treaty rules on the free movement of capital and the right of establishment." Commission's press releases: IP/09/1628, IP/07/82, IP/06/1264, IP/06/569
The Court found that the BITs provision on free transfers related to investment (transfer clause) is incompatible with EU law if it does not allow the application of potential EU measures restricting capital movements. "The Court declares that, by not having taken appropriate steps to eliminate incompatibilities with the Treaty concerning the provisions on transfer of capital contained in the investment agreements on the mutual promotion and protection of investments entered into by the Republic of Finland with the former Union of Soviet Socialist Republics of which the Russian Federation is the successor (agreement signed on 8 February 1989), the Republic of Belarus (agreement signed on 28 October 1992), the People’s Republic of China (agreement signed on 4 September 1984), Malaysia (agreement signed on 15 April 1985), the Democratic Socialist Republic of Sri Lanka (agreement signed on 27 April 1985) and the Republic of Uzbekistan (agreement signed on 1 October 1992), the Republic of Finland has failed to fulfil its obligations under the second paragraph of Article 307 EC."
The Court ruled that, by maintaining in force measures such as those laid down in Supplementary Provision No 27 to Law 55/1999 of 29 December 1999 on fiscal, administrative and social measures, in the version of that provision laid down in Article 94 of Law 62/2003 of 30 December 2003, which limits the voting rights of shares held by public bodies in Spanish undertakings operating in the energy sector, the Kingdom of Spain has failed to fulfil its obligations under Art. 63 TFEU. In compliance with the Court's ruling, on 30 April 2009 the Spanish authorities adopted the Real Decreto-ley 6/2009 repealing the measure in question (Boletín Oficial del Estado No 111 of 7 May 2009) thereby eliminating the restrictions on the free movement of capital created by the 27th Additional Provision. The Commission subsequently decided to close its procedures. Commission's press releases: IP/06/437, IP/05/874, IP/03/964, IP/02/1489
The Court found that the BITs provision on free transfers related to investment (transfer clause) is incompatible with EU law if it does not allow the application of potential EU measures restricting capital movements. "The Court declares that, by not having taken appropriate steps to eliminate incompatibilities concerning the provisions on transfer of capital contained in the investment agreements concluded with the Argentine Republic, the Republic of Bolivia, the Republic of Côte d’Ivoire, the Arab Republic of Egypt, Hong Kong, the Republic of Indonesia, the People’s Republic of China, the Republic of Madagascar, Malaysia, the Islamic Republic of Pakistan, the Republic of Peru, the Republic of Senegal, the Democratic Socialist Republic of Sri Lanka, the Republic of Tunisia, the Socialist Republic of Vietnam, the Republic of Yemen and the former Socialist Federal Republic of Yugoslavia, the Kingdom of Sweden has failed to fulfil its obligations under the second paragraph of Article 307 EC."
The Court found that the BITs provision on free transfers related to investment (transfer clause) is incompatible with EU law if it does not allow the application of potential EU measures restricting capital movements. "The Court declares that, by not having taken appropriate steps to eliminate incompatibilities concerning the provisions on transfer of capital contained in the investment agreements entered into with the Republic of Korea, the Republic of Cape Verde, the People’s Republic of China, Malaysia, the Russian Federation and the Republic of Turkey, the Republic of Austria has failed to fulfil its obligations under the second paragraph of Article 307 EC."
CJEU press release: CJE/07/74 For a descriptive summary of this judgment click here The European Commission decided in November 2008 to ask Germany formally to modify the 1960 law privatising Volkswagen (VW law) following a Court of Justice ruling of 23 October 2007. The Court found that three provisions of the VW law attribute unjustified special rights to German public authorities (the Land of Lower Saxony and potentially also the Federal Government) and that by maintaining them in force, Germany has failed to fulfil its obligations under the EC Treaty rules on the free movement of capital ("The Court declares that, by maintaining in force Paragraph 4(1), as well as Paragraph 2(1) in conjunction with Paragraph 4(3), of the Law of 21 July 1960 on the privatisation of equity in the Volkswagenwerk limited company (Gesetz über die Überführung der Anteilsrechte an der Volkswagenwerk Gesellschaft mit beschränkter Haftung in private Hand), in the version applicable to the present dispute, the Federal Republic of Germany has failed to fulfil its obligations under Article 56(1) EC.") The request for compliance with the Court ruling took the form of a ‘reasoned opinion’, the second stage of the infringement procedure under Ex-Article 228 of the EC Treaty related to compliance with decisions by the Court of Justice (Art. 260 of the TFEU, which entered into force after this Commission decision, no longer foresees such a second stage of the infringement procedure). Commission's press releases: IP/08/1797, IP/08/873, IP/04/1209, IP/04/400, IP/03/410
In this decision regarding tax law, the Court (Grand Chamber) clarified that with regard to the movement of capital between Member and non-Member States, Article 63 TFEU applies irrespective of the category of capital movement. Furthermore, the Court highlighted that “even if the liberalisation of the movement of capital with third countries may pursue objectives other than that of establishing the internal market…it is clear that, when the principle of free movement of capital was extended, pursuant to Article 56(1) EC, to movement of capital between third countries and the Member States, the latter chose to enshrine that principle in that article and in the same terms for movements of capital taking place within the Community and those relating to relations with third countries.” Against this background, the Court explicitly rebutted any counter-argument based on reciprocity or the desire to retain a favourable negotiating position with regard to third countries.
The special rights of the Dutch state in KPN and TPG have been abolished and the Commission subsequently decided to close its procedures. Commission's press releases: IP/03/1753, IP/03/180
The case concerned Italian legislation adopted in connection with the liberalisation of the electricity and gas sectors, which provided for the automatic suspension of voting rights attached to holdings above 2%, if those holdings were acquired by public undertakings that were not quoted on a stock exchange and held a dominant position in their domestic market. The Court ruled that the suspension of voting rights prevents investors from participating effectively in the management and control of Italian undertakings in the electricity and gas markets and therefore constitutes a restriction on the free movement of capital – a fundamental Treaty freedom that draws no distinction between private and public undertakings or those holding a dominant position and those that do not. The Court did not accept that the general strengthening of the competitive structure of the markets in question was a valid justification for such a restriction and concluded that Italy had infringed the Treaty provisions on the freedom of capital movements. The European Commission decided to close the infringement procedures against Italy in view of the measures taken by Italy on 1 August 2006 to comply with the Court ruling. Commission's press releases: IP/06/1366, IP/06/439, IP/05/1270, IP/03/1734, IP/03/964, IP/02/1489
CJEU press releases: CJE/03/37; CJE/03/6 In this case, the Court found that, by maintaining in force provisions limiting the possibility of acquiring voting shares in British Airports Authority (BAA) plc, as well as the procedure requiring consent to the disposal of the company's assets, to control of its subsidiaries and to winding-up, the United Kingdom had failed to fulfil its obligations under Treaty rules on the free movement of capital (Article 63 TFEU). Following a notification by the United Kingdom of additional measures, taken on 27 July 2004, to ensure compliance with the judgment, it was decided to close this case. Commission's press releases: IP/04/1234, IP/04/17, IP/00/1142, IP/99/582
CJEU press releases: CJE/03/37; CJE/03/6 The Court found that by maintaining in force certain provisions of the privatisation Law 5/1995, as well as Royal Decrees on Repsol SA, Telefónica de España SA, Telefónica Servicios Móviles SA, Argentaria, Tabacalera SA, and Endesa SA, in so far as they implement a system of prior administrative approval, Spain had failed to fulfil its obligations under Treaty rules on the free movement of capital. Following a notification by Spain of additional measures taken on 26 May 2006 to ensure compliance with the judgment, it was decided to close the infringement procedures. Commission's press releases: IP/06/1027, IP/05/874, IP/04/923, IP/00/715, IP/99/579
CJEU press release: CJE/02/49 The Court ruled that the two Royal Decrees dating from 1994 which vested in the State "golden shares" in Société Nationale de Transport par Canalisations and in Distrigaz are compatible with the fundamental principles of Community law, both as regards the justification put forward for the objective pursued by Belgium (namely, to maintain minimum supplies of gas in the event of a real and serious threat) and the measures prescribed for the attainment of that objective. The judgment provides valuable guidance on proportionality considerations regarding special rights. Commission's press release: IP/98/1135
CJEU press release CJE/02/49 The infringement proceedings against France regarding its special shareholding (golden share) in Société Nationale Elf-Aquitaine have been formally closed by the Commission, in view of the measures taken by France to comply with a ruling of the Court of 4 June 2002, finding the special shareholding to be incompatible with the provisions of the Treaty on the free movement of capital. On 3 October 2002, the French authorities adopted Decree Nr. 2002-1231, which repealed Decree Nr. 93-1298 of 13 December 1993 establishing a "golden share" in the capital of Elf-Aquitaine. Commission's press releases: IP/03/692, IP/99/583, IP/98/1058
"THE COURT declares that, by adopting [...] the decrees concerning the 'special powers' laid down in the case of the privatisation of ENI SpA and Telecom Italia SpA, the Italian Republic has failed to fulfil its obligations under Articles 43 EC, 49 EC and 56 EC."
"THE COURT declares that, by prohibiting the acquisition by persons resident in Belgium of securities of a loan issued abroad, [...], the Kingdom of Belgium has failed to fulfil its obligations under Article 73b of the EC Treaty (now Article 56 EC)." Following this ruling, the Belgian authorities confirmed that any future international borrowing launched by the Kingdom of Belgium would be free of any selling limitations condemned by the ECJ. Consequently, the Commission decided to close this case on 18 July 2001.
CJEU press release: CJE/02/49 The European Commission decided to close infringement procedures against Portugal for its failure to comply with a Court of Justice ruling of 4 June 2002. The ruling had found the procedure for authorising foreign investment in certain privatised undertakings in banking, insurance, energy and transport to be incompatible with the provisions of the EC Treaty on the free movement of capital (Art. 63 TFEU). This decision follows the notification by Portugal of additional measures taken on 4 February 2004 to ensure compliance with the Court ruling. Commission's press releases: IP/04/880, IP/03/692, IP/97/1111 Agreement on the European Economic Area (EEA)The Agreement on the European Economic Area (EEA), which entered into force on 1 January 1994, brings together the 27 EU Members and three of the EFTA countries — Iceland, Liechtenstein and Norway. Its aim is to guarantee the free movement of persons, goods, services and capital; to provide equal conditions of competition and to abolish discrimination on grounds of nationality in all 30 Member States. A two-pillar system for supervision and judicial control has been established: the EU Member States are supervised by the Commission, whereas the EFTA States party to the EEA are supervised by the EFTA Surveillance Authority and on judicial control, the EFTA Court operates in parallel to the CJEU. The CJEU has ruled that capital movements to and from EEA countries shall, according to the provisions of the EEA Agreement, be treated in the same way as intra-EU capital movements (see case C-452/01, Ospelt, §§28-29). Read more on the official websites of: |
