ECJ’s Decision (C-139/12), March 20, 2014. Sale of shares involving the transfer of immoveable property. Compatibility of local legislation against European VAT Directive


The decision from the European Court of Justice (ECJ) relates to a request for a preliminary ruling concerning the potential incompatibility between the Spanish local legislation and the European VAT Directive (Sixth Directive 77/388/EEC) as regard the article 108 of the Stock Market Law (SML), which subject to tax on capital transfer, by considering as a “transfer of assets for consideration”, the transfer of the shares of a company the assets of which essentially comprise immovable property, rather than VAT.

In summary, the article 108 of the Spanish SML does exclude from the capital transfer tax exemption, the transfers made on the secondary market, and also acquisitions made on the primary market as a consequence of the exercise of preferential subscription rights and of the right to convert debentures into shares, of securities which represent a portion of the share capital or assets of companies, funds, associations or other entities at least 50% of the assets of which comprise immovable property situated within the national territory, provided that, as a result of such a transfer or acquisition, the purchaser obtains full ownership of those assets or, at least, is in a position which enables it to exercise control over those entities

In the present case, a Spanish entity did acquire a shareholding over the 65% of the Capital Share of another Spanish entity with assets formed by immovable property over a 50% and placed in the Spanish territory, thus levied by the capital transfer tax, according to the article 108 of SML. Nevertheless, in a further moment, the Spanish entity requested for the refund of the tax paid, arguing that the article 108 was contrary to the VAT Sixth Directive provisions.

In this sense, among the preliminary rulings requested by the National Court to the ECJ, the latter has only been pronounced as regard the incompatibility of the national legislation of the article 108 SML against the potential VAT subjection of the transactions.

Firstly, it must be recalled that, as follows from Article 33(1) of the Sixth Directive, a Member State is not precluded from maintaining or introducing taxes, duties and charges which cannot be characterised as turnover tax. Accordingly, the ECJ concludes that the Sixth Directive is not contrary to a national legislation, such as the article 108 of SML, which makes the acquisition of the majority of the capital of a company, the assets of which essentially comprise immovable property, subject to an indirect tax other than value added tax.

In general terms, the ECJ refers to previous Case-Law where it concludes that “a tax with characteristics such as those of the tax on capital transfers differs from VAT in such a way that it cannot be characterised as a turnover tax within the meaning of Article 33(1) of the Sixth Directive”.

Therefore, the ECJ declares the compatibility of the article 108 of the SML with the European legislations, at least as regard the nature of the capital transfer tax against the VAT, as far as the capital transfer tax cannot be deemed as a turnover tax, as it happens with VAT.

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ECJ Decision C_139 12_ VAT exemption on sale of shares for the transfer of a immovable property

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