Sword beach is in La Monnaie: King’s College London Centre of European Law celebrates its 40th anniversary with a high profile event in Brussels

Jose Manuel Panero Rivas

MA in Economics for Competition Law, King’s College London, LL.M in European Law, College of Europe, Bruges



Almost 70 years after the Normandy landings, the Centre of European Law of King’s College London arrived to the heart of Brussels to celebrate its 40th anniversary with the community of distance learners’ alumni. There, some of the most prominent London-based professors of the Centre were celebrating the success of the institution with their Brussels-based colleagues and former students. In attendance were Professors Biondi, Turk, Whish, Flynn, Jones, Wils, Buendía, Stefan amongst many others.


After a short introductory speech by Prof. Biondi (director of the CEL), the event was arranged in such a way that two different sessions ran simultaneously, one on EU Law (which was, in turn, divided into two sub-sessions) and another one on EU Competition Law. As the author is not ubiquitous, the EU Competition Law session, bearing the title “The increased use of settlements and commitments in antitrust enforcement: a success or a problem?” is not reviewed or summarised (although sources reported it was excellent, as it is the rule when one thinks of a session lectured by Profs. Whish and Wils). The lectures were followed by a great dinner not summarised here.


Free movement of capital with Prof. Flynn

There were two topics within the EU Law session. The first was “Recent developments on free movement of capital in relation to fiscal sovereignty” and was conducted by Prof. Flynn. This consisted in a review of two interesting 2009 CJEU judgments on the application of free movement of capital to issues related to charity. As Prof. Flynn mentioned, there is the general belief that “charity remains at home” but, notwithstanding that, the CJEU has consistently held that fundamental freedoms should equally apply to cases where the State provides a given framework for private entities and individuals donating to certain goals or institutions (not directly, as otherwise State aid rules might be applicable if the beneficiary develops an economic activity).

The first of them is Persche.[1] Mr Persche claimed that his donation of certain goods (Zimmer frames, toys, bed linen and towels) to Centro Popular de Lagoa, in Portugal, should qualify as deductible expenses for the purpose of his tax return in Germany. However, the German authorities refused his request on the grounds that the recipient of the donation was not established in Germany.


The Court clarified that the taxable treatment of such goods are within the scope of the rules on capital, irrespectively of their in-kind nature,[2] and that the inability to deduct these donations when the recipient is not established in Germany constitutes a restriction on the free movement of capital.


Thereafter, the Court analysed whether the restriction could be justified. Three arguments were put forward : (i) a tax allowance decreases Member State’s tax revenues, and the Member State should have to allow it only if there is a corresponding decrease in its expenses by the taxpayer taking a burden that would otherwise fall on the State; (ii) the tax advantages allow the Member State to discharge it of  some of its duties, which are confined to the territory of the Member State itself; and (iii) tax authorities cannot control that the funds benefiting from tax advantages granted outside the relevant Member States are indeed going to a truly charitable cause.


The Court dismissed all three arguments on the basis that: (i) the idea of justifications based on a reduction of fiscal incomes is neither a pure economic reason fitting within Article 65 TFEU nor does it constitute an overriding reason of public interest; (ii) the Member State should be free to choose the charitable goals it might consider appropriate and there is no good reason to consider that only specific institutions within its borders can fulfil such goal; and (iii) concerning the effectiveness of fiscal supervision, there are mechanisms within the EU for mutual assistance between tax administrations.[3]


The second judgment is Servatius,[4] where was at stake the eligibility of  a social housing project in Liège (Belgium) promoted by an association established in The Netherlands for the purpose of funding by the Dutch authorities of social housing projects. The system of prior authorisation established by the Dutch authorities was considered by the Court as a restriction of the free movement of capital. However, the Court considered that the financing of public housing could be considered as an overriding reason of public interests, particularly in the specific context of The Netherlands. Ultimately, as it happens often with preliminary rulings, the question on whether the measure was proportionate or not was left for the national court.


The paper prepared by Prof. Flynn is available here.


Constitutional problems with Prof. Turk


The second topic was a presentation by Prof. Turk on the constitutional problems posed by the current architecture of EU regulation of the financial sector under the title of ‘EU Institutional Architecture for Financial Regulation – Constitutional Issues and Solutions’.


As the readers of this blog know, there are currently different levels of regulation in the field. On the first level there are EU Directives and Regulations (such as the Capital Requirements Directive (CRD)[5] and the Bank Recovery and Resolution Directive (BRRD)[6]). On a lower level, the Commission adopts subordinate regulations. However, the ever increasing number of agencies (European Securities and Markets Authority – ESMA -, European Banking Authority _- EBA – European Insurance and Occupational Pensions Authority – EIOPA) prepare the drafts of those technical regulations, which specify the relatively broad concepts contained in the Directives or Regulations. Whilst those technical rules are formally approved by the Commission, some observers have pointed out the existence of a certain “rubberstamping” on the action of the Commission (especially because agencies are increasingly well funded while the Commission struggles to have the necessary resources to do a proper job). However, the problem is that, irrespective of the kind of “technical” decisions that are to be adopted, they would almost always have a political content. Therefore, the involvement of the Commission might be necessary after all.


This happens in a scenario in which there is a progressive takeover of the agencies by the Member States, whose representatives involved in the decision-making processes within the agencies act in the “general interest of the Union” but, one might wonder whether this “general interest of the Union” is as general as the one genuinely promoted by the Commission.


This status quo was reconsidered in the cases of Meroni[7] and ESMA,[8] which should be taken into account if the powers and acts of the agencies or the Commission in the field are challenged in the future.


The presentation prepared by Prof. Turk is available here.


Both presentations within the EU Law session were extremely interesting, fostering a remarkable debate.


Although the dinner is not to be reviewed, Prof. Whish’s speech is worth noting. The highly respected and regarded KCL Competition Law Emeritus Professor expressed his genuine joy for the success of the distance learning programmes, of which he is very proud. Prof Whish is fully committed with the distance learning programmes as he is the Director and Professor in the Programme on Competition Law, as well as co-director of the Economics for Competition Law Programme.


Overall, it has been an excellent experience that deserves to be repeated. Besides the interest of the lectures, it has been an excellent occasion for the Centre to consolidate its footprint in Brussels. And it has been extremely successful as it has been perceived as a tour de force and, when testing the audience, certain remembrances with the unforgettable passages in which Oliver Twist says “Please, Sir, I want some more”[9] (even if the Directors of the Centre do not resemble Mr. Bumble in any way) become apparent.


And finally, a big thank you to Andrea Cordwell James for her assistance in providing the presentations and obtaining the consent of the authors to share with the readers the materials presented during the lectures.


[1] Case C-318/07 Persche [2009] ECR I-359.

[2] Even if the provisions on free movement of goods were to be applied, one might not expect a different result given the facts of the case.  This might, however, be different if the situation would refer to beneficiaries located outside the EU.

[3] Particularly Directive 2011/16/EU of 15 February 2011 on administrative cooperation in the field of taxation.

[4] Case C-567/07 Winingstichtung Sin Servatius [2009] ECR I-9021.

[5] Capital Requirements Directive. For the documents integrating the CRDIV package see http://ec.europa.eu/internal_market/bank/regcapital/legislation_in_force_en.htm#maincontentSec1

[6] Bank Recovery and Resolution Directive. For an overview of the progress of adoption of the Directive see http://ec.europa.eu/internal_market/bank/crisis_management/index_en.htm

[7] Case 9/56 Meroni.

[8] Case C-270/12 UK v Paliament and Council. n.y.r.

[9] C. Dickens, Oliver Twist.

Free movement of capital and Golden Shares in Volkswagen: unexpected twist or foreseeable outcome?

Jelena Ganza, PhD Candidate, Dickson Poon School of Law, KCL

Pursuant to the so-called ‘loyalty to the EU principle’ enshrined in Article 10 EC, Member States are obliged to remove national barriers to free movement of capital (Article 63 TFEU). However there are certain national barriers which the Member States sought to retain in spite of the foresaid obligation. These barriers are the so-called ‘golden shares’[i]  which allow State to retain control over former SOE’s. Typically, the special ‘golden’ share (hereafter: GS) aimed to remain property of State, granting it with special powers and allowing to exercise control over company’s management which could only be exercised by a majority shareholder. In order to be acceptable under the then EC law GS had to be justified on grounds of exceptions laid down in the Treaty[ii], meet legal certainty and proportionality requirement – an imperative that could not be easily satisfied. The EU Commission has long acknowledged that there is no place for unjustified GS and sued erring Member States in the Court of Justice of European Union (CJEU). The CJEU has evaluated the legality of GS in fifteen cases and only in one instance their application has been justified.[iii] These condemning judgments are of declamatory character therefore it is up to the national Government to choose how to comply.

Compliance obligations stem from the CJEU’s judgments – depending on the wording of the operative part and summary the State’s Government could employ different compliance strategies. Firstly, the Member State could repeal GS, thus entirely eliminating the infringement of the Treaty. Compliance by repeal could be seen as acting in line with the sincere co-operation principle as it eliminates the breach of the Treaty in its entirety and therefore effectively complies with the judgment. Secondly, the Member State could attempt to meet the justification criteria so that overruled GS could pass the justification test. Since passing the justifying GS is a challenging task, in practice the Commission was never satisfied with ‘compliance by amendments’. Following such amendments GS retained their dissuasive powers for foreign investors and subsequently impeded capital movements. As a result, any justification attempts of overruled GS inevitably triggers further infringement proceedings on amended GS or even sparks further infringement procedure for non-compliance with the original judgment. Therefore, any ‘compliance by amendment’ could be seen as acting contrary to the sincere co-operation principle under Article 10 EC. The above finding has been tested by analysis of Italian cases[iv] which revealed that GS are of obstinate character and governments could be reluctant to repeal them while tampering with the justification test instead.

Generally GS judgments clearly established which provisions were illegal leaving the Member State with indication as to which GS have to be repealed or amended. However, as the following analysis will show, sometimes the Member States are left with a GS ruling with a seemingly dubious compliance obligations stemming from it. Such was the case with the CJEU’s landmark ruling on C-112/05 Commission v Germany[v] which is one of the most famous and longest-running cases in Community history. In this case the Commission challenged one of the oldest instances of GS, the so-called ‘Volkswagen Law’ (the Law) implemented in 1960’s exclusively for the automobile company Volkswagen. It must be stressed, that the Law differs considerably from other GS in other States in one respect: it did not reserve special powers for the sole benefit of the Member State per se but rather used provisions of national company law to treat State authorities as ordinary private shareholder.

The Law created a legal framework which indirectly benefited the State of Lower Saxony – major shareholder with 20% stake. The Law limited the voting rights for all shareholders to 20% of the total share capital, while at the same time increased the majority required for approval of resolutions by general shareholder meeting from 75% to 80%. The set percentage thresholds were by no means accidental, but rather aimed to correspond with Lower Saxony’s stake in Volkswagen The combination of the ownership ceiling and increased majority provision allowed for Lower Saxony to exercise control over Volkswagen that would normally be available only to a shareholder owning 25% of the shares.   Additionally, the Law allowed for Lower Saxony to appoint two directors to the company’s supervisory board for as long as it retains any shares in the company, thus explicably granting the authorities with special power to assign directors. However, neither increased majority, nor voting right ceiling referred to Lower Saxony as a sole beneficiary of the Law. In the strictest sense any other shareholder owning 20% of Volkswagen’s shares could benefit from these provisions. However, it is clear that the Law was created for the sole benefit of Lower Saxony – the 20% minority stakeholder.

In spite of the fact that the Commission asserted that all three paragraphs of the Law infringe the Treaty individually, both Advocate General and the CJEU analysed the increased majority and the voting right ceiling together in order to assess their combined deterring effect on capital movements.[vi] At the joint examination of cumulative effects of the Law the Court went on to link the effects of the increased majority and the voting right ceiling, stating that provisions supplemented each other, creating a legal framework which enabled Lower Saxony to exercise considerable influence on the basis of its investment.[vii] The Court came to the conclusion that the combination of the foresaid provisions constitutes a restriction on the movement of capital.[viii] The Court ruled that by maintaining in force provision on directors’ appointments, as well as voting right ceiling in conjunction with increased majority provision, Germany has failed to fulfil its obligations under Article 63 TFEU.

Germany had to comply with the judgment by choosing its compliance strategy – to repeal or amend the Law. While choosing the strategy the Government referred to the judgment and proceeded with amending the Law by removing some overruled provisions.[ix] In the Government’s view the judgment anticipated two necessary amendments: to the director’s appointment right and the deterring system. The Government concluded that since the interplay or interaction between the two provisions of the Law infringes the Treaty, by removing only one component of the system the interaction between the two provisions will be eliminated effectively terminating GS so there would be no necessity to repeal the remaining provision. Therefore, the compliance strategy anticipated amendment to the Law by repealing the voting right ceiling (which was also contrary to German law on stock companies) and provision on director’s appointments, yet the increased majority provision remained in force. Subsequently, the Government choose to follow the wording of the ruling without going further than strictly necessary. Effectively, Germany has complied with the judgment while at the same time Lower Saxony’s 20% stake allowed it to continue its influence over Volkswagen.

Commission was not satisfied with such compliance strategy and threatened to sue Germany for non-compliance with the original GS ruling under Article 260 TFEU. Germany defended its compliance strategy emphasising that it had no obligations to amend overruled Law beyond the requirements of the judgment. Germany insisted that the judgment required for abolition of the legal framework and subsequent amendment met that requirement. Commission pushed for removal of increased majority provision, but Germany resisted.

The ambiguity of compliance obligations stemming from Commission v Germany has been further deepened by judgment of District Court of Hannover[x]. The District Court assessed the wording of the CJEU’s judgement and concluded that neither the increased majority provision nor the voting rights ceiling is contrary to the Treaty per ce. [xi]   According to the District Court only the joint effect of the said provisions constitutes the breach of the Treaty.[xii] However, in spite of the District Court’s finding, the EU Commission urged Germany to repeal the remaining provision of the Law in order to fully comply with ruling on C-112/05. Germany, on the other hand, sought to convince the Commission that such interpretation of compliance obligations stemming from the said judgement is erroneous. Germany insisted that repealing one of the two provisions of the Law is sufficient to facilitate full compliance. The government proposed to submit a joint application for interpretation of the CJEU’s judgment in order to resolve the differing views on compliance obligations.  Yet the Commission declined Germany’s offer stating that there are “no doubts as to the meaning or scope of the 2007 Judgment”.[xiii]

The above interpretative challenges led the Commission to refer the matter to the CJEU in 2012 under Article 260 TFEU suing Germany for non-compliance with judgment on C-112/05, stating that it is apparent that each of the three contested provisions of the Law infringed Article 63 TFEU individually. The resulting judgment on C-95/12 Commission v Germany, delivered on 22 October 2013 was the first of its kind in the existing body of GS case law since no other Member State had to such great extent resisted the Commission’s views on necessary compliance obligations. In C-95/12 the CJEU ruled that the Commission’s complaints should be dismissed. Such an outcome of the judicial proceedings could be seen as a surprise for some, yet for others, it would appear to be anything but a surprise.

First, even though the judgment on C-112/05 could be seen as missing the opportunity to outlaw the increased majority provision of the Law, the judgment on C-95/12 merely concerns the alleged non-compliance with the GS ruling and not the potential illegality of the foresaid provision. In C-95/12 the Court has evaluated German compliance strategy and came to a conclusion that it has fully complied by removing one of the two provisions which constituted an illegal system. The outcome of C-95/12 also appears unsurprising once the ruling by the District Court of Hannover is taken into account. The District Court has rightfully observed that the CJEU has evaluated the two provisions of the Law as two pieces of one whole therefore removing one part of the system would result in its ineffectiveness. Lastly, the outcome of the case C-95/12 has been predicted by Advocate General when he concluded that the judgment on C-112/05 is not “particularly ambiguous” and it is “regrettable” that the parties had contrasting views on its interpretation and could not agree on the necessary compliance measures.[xiv] Advocate General’s opinion has predicted doom for the Commission’s claims, confirming that in order to determine the necessary compliance strategy Germany had to refer to the operative part of the judgment and not to the broad interpretation of assumed illegality of all three provisions of the Law as suggested by the Commission.[xv]

Even though the outcome of the judgment C-95/12 could have been predicted, it should be emphasised that the increased majority provision of the Law could once again become subject to further judicial review. The retained provision of the Law has the potential for being in breach of free movement of capital. However, the Commission would have to initiate a separate infringement procedure to prove that. The above analysis of German compliance strategy demonstrates the inherent obstinacy of GS. If, in line with the sincere co-operation principle, Germany would have opted to repeal all the contested provisions, there would not be any interpretational issues of the judgment and the increased majority provision would not retain the potential for being taken to the CJEU on separate proceedings in the future. This analysis once again demonstrates that when it comes to compliance with GS judgments, the best possible compliance scenario would be repealing GS altogether rather than amending them. The controversy of the Court’s judgment on C-112/05 is likely to re-appear in the future if the Commission would choose to refer the matter to the Court. The extent to which Germany’s compliance with the ruling could be seen as acting in line with ‘sincere co-operation’ principle under Article 10 EC could also be questioned, especially if legality of the retained provision would be tested by the Court.


Key terms: Golden Shares, Compliance, Free Movement of Capital


Law governing the transfer of share rights of Volkswagenwerk GmbH to private parties (Gesetz über die Überführung der Anteilsrechte an der Volkswagenwerk Gesellschaft mit beschränkter Haftung in private Hand) of 21 July, 1960, BGBI. I 1960, at 585 and BGBI. III at 641, amended 6 September 1965, BGBI. I at 461 and 31 July 1970, BGBI. I at 1149.

Draft law Amending the Law governing the transfer of share rights of Volkswagenwerk GmbH to private parties (Gesetzentwurf der Bundesregierung, Entwurf eines Gesetzes zur Änderung des Gesetzes über die Überführung der Anteilsrechte an der Volkswagenwerk Gesellschaft mit beschränkter Haftung in private Hand)



C-112/05 Commission v Germany;

C-95/12 Commission v Germany;

Judgment of the first Commercial Chamber of the District Court of Hannover of 27.11.2008 – 21 O 52/08, Judgment of the first Commercial Chamber of the District Court of Hannover of 27.11.2008 – 21 O 61/08.




[i] On the subject see Jelena Ganza for KSLR European Law Blog: ‘A Continuing analysis of the Never-Ending Story: Golden Shares after Italian elections’, (10 June 2013) and ‘Italian Golden Shares – a Never-Ending Story?’, (January 2013).

[ii] public health, policy and security, see Article 55 EC, Article 56 EC, Article 223 (b) EC, Article 65(1)(b) TFEU

[iii] Commission v. Italy, C-58/99, judgment of the CJEU of 23 May 2000; Commission v. France, C-483/99, 4 June 2002; Commission v. Belgium, C-503/99, 4 June 2002 (justified); Commission v. Portugal,  C-367/98, 4 June 2002; Commission v. United Kingdom, C-98/01, 13 May 2003; Commission v. Spain, C-463/00, 13 May 2003; Commission v. Italy C-174/04, 02 June 2005; Joined cases C-282/04 and C-283/04, Commission v. Netherlands, 28 September 2006; Federconsumatori v. Commune di Milano, C-463/04 and C-464/04, referred to the Court for preliminary ruling, 6 December 2007; Commission v. Germany, C-112/05, 23 October 2007; Commission v. Spain, C-274/06, 14 February 2008; Commission v. Spain, C-207/07, 17 July 2008; Commission v. Italy, C-326/07, 26 March 2009; Commission v. Portugal , C-171/06, 8 July 2010; Commission v. Portugal, C-543/08, 11 November 2010

[iv] ibid n (i)

[v] Commission v. Germany note iii above

[vi] Opinion of Advocate General Ruiz-Jarabo Colomer, delivered on 13 February 2007 in Case C-112/05 Commission v Germany [76]-[81]

[vii] Commission v. Germany [51].

[viii] Commission v. Germany [56].

[ix] See Deutscher Bundestag (25 September 2008), Gesetz zur Änderung des Gesetzes über die Überführung der Anteilsrechte an der Volkswagenwerk Gesellschaft mit beschränkter Haftung in private Hand (Law amending the Law governing the transfer of share rights of Volkswagenwerk GmbH to private parties), BGBl. 2008 I No 56, p. 2369

[x] Judgment of the first Commercial Chamber of the District Court of Hannover of 27.11.2008 – 21 O 52/08, Judgment of the first Commercial Chamber of the District Court of Hannover of 27.11.2008 – 21 O 61/08.

[xi] Judgment 21 O 61/08 (n x) at Reasons I 2 (k)

[xii] Judgment 21 O 61/08 (n x) at Reasons I 2 (k)

[xiii] Advocate General (2013), Opinion of Advocate General Wahl, delivered on 29 May 2013, Case C 95/12, European Commission v Federal Republic of Germany, [12].

[xiv] Advocate General (2013) [24]-[25].

[xv] Advocate General (2013) [26].

Robin Hood (tax): really an EU outlaw?

Alin Fouladvand, MSc Risk and Finance, London School of Economics

Marco Guerra, LLM University of Milan; LLM Student, King’s College London


1. Introduction

On 28 September 2011, the European Commission proposed a harmonised Financial Transaction Tax (FTT) aimed, among other reasons, at the reduction of competitive distortions in the single market[1]. In the absence of an unanimous agreement between all EU Member States, a subgroup of them (the so-called FTT Zone) engaged into a procedure of “enhanced cooperation” for a common FTT[2], authorised by the European Parliament on 12 December 2012 and by the EU Council on 22 January 2013. On 14 February 2013, the European Commission published its detailed proposal, approved by the European Parliament in July 2013 and expected to enter into force on 1 January 2014.


The FTT will be levied to financial transactions between financial institutions charging 0.1% for the exchange of shares and bonds and 0.01% for derivative contracts, on the requirement that at least one party to the transaction is established in FTT Zone and that a financial institution established in the FTT Zone is party to the transaction. The United Kingdom, supported by several EU members, challenged this proposal urging the opposition to the tax due to its risk of damaging feeble economic growth and its compatibility with European Union treaties[3].Over all, the United Kingdom criticised the residence principle that forced the financial institutions to be treated as resident in the participating member states and therefore to have to make tax declarations and to pay tax, simply because they enter into transactions with other financial institutions resident in a participating state, establishing there the infrastructures for meeting those tax liabilities[4].


2. The EU Council’s opinion

On 6 September 2013 the European Union Council’s legal service published a (not binding) opinion where it is stated that this type of levy “would constitute an obstacle to the free movement of capital as well to the freedom to provide services[5],[6]. In the following part we would aim at understanding more widely the reasons that could have inspired this position starting from the analysis of the treaties to clear if the FTT contravenes the free movement of capital.

According to the Article 63 of the Treaty on the Functioning of the European Union (hereafter, TFEU), 
”[…], all restrictions on the movement of capital between Member States and between Member States and third countries shall be prohibited“.

The jurisprudence of the European Court of Justice has developed a three-step approach to verify the compatibility of a provision in the light of the TFEU freedoms[7]. With reference to the FTT, this test involves the following questions:


(i)     Does the FTT fall under the scope of the free movement of capital?

(ii)  If so, does the FTT constitute a restriction of the free movement of capital?

(iii)                        If so, is the FTT justified?


Considering the first question, we observe that the TFEU does not define the term “movement of capital”. In the case Trummer and Mayer[8] the CJEU has indicated that, “its meaning should be determined by reference to the nomenclature in Annex I to Council Directive 88/361/EEC of 24 June 1988”, that covers “all the operations necessary for the purposes of capital movements: conclusion and performance of the transaction and related transfers[9]. Given the above we can conclude that the FTT falls under the scope of the Article 63 of TFEU.

With reference to the second, and more critical, question we note that the legal opinion published by the European Union Council’s legal service expresses concerns that the proposed Directive would render less attractive financial transactions with financial institutions located outside the participating Member States, since these institutions would have to pay the FTT at different rates in different countries and the counterparty may be unwilling to be liable to that tax and to face, on these grounds, legal uncertainty and possible disputes with the authorities of the participating Member State”.

In other words, the FTT would impose a duty on those transacting with entities in the FTT zone and, therefore, restrict the free movement of capital guaranteed by TFEU by producing “an effect equivalent to that of a duty imposed in return of the possibility to enter into a transaction with an institution located in a participating Member State[10].

Further into the second question, the proposed Directive applies the “counterparty” factor in a discriminatory manner. The question of free movement of capital rises due to the fact that these rules limit issuing of financial instruments by a party from a participating Member State in non-participating Member States. The reason being that these transactions would be subject to taxation with the FTT, in clear contrast to transactions to which the tax does not apply. It results from Sandoz[11] that imposing a barrier to investment in other Member States is a restriction on free movement of capital and Article TFEU 63.

In addition, the FTT is indirectly discriminatory, because it makes more expensive for a company based in a “non-FTT” state to conduct business in a “FTT state” (and vice versa) in comparison to its local competitors.


3. The debate on the FTT

Contrary to the Council’s opinion, it has been observed that the FTT does not constitute a discriminatory restriction of the free movement of capital. This is because the levy applies to each financial transaction with determined elements and no distinctions are made between cross-border and domestic capital transactions[12]. As explained by the jurisprudence of the Court of Justice of the EU (CJEU) the discrimination can arise through the application of different rules to comparable situations or through the application of the same rule to different situations[13]. However, this opinion is not universally accepted between scholars. It is believed that the FTT could limit the circulation of the capitals in the common market and, furthermore, it is “considered as a high tax level since in some cases […] it will tax non-existent wealth[14].

Nevertheless, the European Commission’s own legal advisors refused the Council’s legal opinion, observing that, actually, every single tax levied on a cross-border transaction limits the movement of the capitals[15]. They observed that “[…] the fact that FTT would [not] exist outside [the] FTT area, is merely a disparity which is neutral from the perspective of the Treaty freedoms”.

The last question refers to the two derogations stipulated by Article 65 TFEU, whereby these measures should not be in the form of arbitrary discrimination or disguised restriction on free movement of capital. The first derogation, stipulated in Article 65(1)(a) TFEU is specific to tax and stipulates acceptable tax provisions that existed at the end of 1993 and, thus, it is not applicable on the FTT. The second set of derogations is stipulated in article 65(1)(b) TFEU and consists of three possible general derogations to the free movement of capital: to prevent illegal tax evasion, for the purposes of administrative or statistical information, and on grounds of public policy or public security. Clearly the FTT does not carry the prerequisites for the first two. For the latter to be applicable, the CJEU has determined that it is necessary to identify and prove “a genuine and sufficiently serious threat to a fundamental interest of society[16]. The FTT aims to curb speculation and this is in the interest of public security, however the latter derogation should be used carefully. In Albore[17] the CJEU stated that a reference to public policy or security was not in itself sufficient to justify restrictive measures. It must be proven that alternative treatments would expose the Member State to real risks that could not be countered by other, less restrictive measures.[18] Although the economic rational behind the FTT is understandable, the threat to national security is not clearly defined and the risk seriousness of not adopting a FTT is not possible to answer at this point. Also, according to Verkoojen[19] a restriction of a fundamental freedom can be only admissible if it justifiable in virtue of the general interest, excluding thus purely economic reason[20]. This makes the derogation in article 65(1)(b) TFEU far from applicable. To conclude, none of the express derogations in article 65(1) TFEU are applicable to the FTT.


4. Conclusion

Currently the question of the legitimacy of a FTT is still open also within the European institutions; responding to the question posed by the EU member of Parliament Marc Tarabella on the potential violation of the free movement of capital as observed in the above mentioned legal opinion, the Council answered that “a position has not been reached[21].

Thus, it clearly appears how the debate on the compatibility of the financial transactions’ taxation with the EU Treaty is not yet solved. We can only observe that if there is not a definitive juridical approach in the academic debate, a consideration can be expressed exclusively based on the tax policy.

As known, since 2013 Italy implemented a tax on financial transactions; accordingly, several Italian operators started to move their business to other countries where the tax was not levied and the expected revenue fell considerably[22]. The same it was already happened in Sweden where, after the introduction of a transaction tax in 1984[23].

In conclusion, the protection of a market (the capitals’ one, in our case) is not only a legal issue but should be faced considering the real effects on the economy. After all, since the Chicago School, economic arguments have been developed to claim that taxes are costs that burden the functioning of the financial markets. However, no legal principle prevents sovereign states from introducing (even stupid) taxes if they democratically decide to[24].

[1]          See IP/11/1085, Financial Transaction Tax: Making the financial sector pay its fair share, European Commission, Press release. For a technycal analysis of the proposal see Adam Blakemore, Proposal for a European Union Financial Transaction tax, Journal of International Banking and Financial              Law (2012) 2 JIBFL 104.

[2]               The subgroup includes Austria, Belgium, Estonia, France, Germany, Greece, Italy, Portugal, Slovakia,             Slovenia and Spain.

[3]           See Case C-209/13, Action brought on 18 April 2013 by United Kingdom of Great Britain and Northern Ireland v Council of the European Union.

[4]               Thomas Richter, Financial transaction tax will “damage” economy, Financial Times, 8 September 2013.

[5]               Council of the European Union, Opinion of the legal service, 2013/0045 (CNS), § 40.

[6]               Huw Jones, 5-EU lawyers say transaction tax plan is illegal, Reuters, 10 September 2013; Louise               Armistead, EU lawyers say financial transaction taxi s illegal, The Telegraph, 10 September 2013.

[7]              Dennis Weber, Otto Marres,  Taxing the Financial Sector: Financial Taxes, Bank Levies and More, IBFD,  2012, p. 124.

[8]               ECJ, 19 March 1999, Case C-222/97.

[9]               Furthermore, the CJEU has also indicated that transactions not listed in the nomenclature may          nonetheless constitute a capital movement.

[10]             Council of the European Union, Opinion of the legal service, 2013/0045 (CNS), § 40.

[11]             Case C-439/97, Sandoz GmbH v. Finanzlandesdirektion für Wien, Niederösterreich und Burgenland, para. 19. –       ECR 1999, p. I-7041.

[12]             Dennis Weber, Otto Marres,  Taxing the Financial Sector: Financial Taxes, Bank Levies and More, IBFD, 2012,         p. 131.

[13]             Inter alia, see Case C-279/93 (Schumacker) and Case C-148/02 (Garcia Avello).

[14]             Pablo A. Hernandez Gonzalez-Barreda, On the European way to FTT under Enhanced Cooperation: Multi-speed Europe or Shorcut?, Intertax, Vol. 31, Issue 4, 2013.

[15]             Non-paper by the Commission services, Response to the opinion of the legal service of the Council on the legality of the counterparty-based deemed establishment of financial institutions.

[16]             Case C-54/99 Eglise de Scientologie [2000] ECR I-1335, para. 18.

[17]             Case C-423/98 Albore [2000] ECR I-5965.

[18]             Case C-423/98 Albore [2000] ECR I-5965, para. 22.

[19]             Case C-35/98, Staatssecretaris van Financien v. Verkoojen, para. 46. – ECR 2000, p. I-4071.

[20]             Case C-311/97, Royal Bank of Scotland v. Greece, para. 48.

[21]              Question E-010636-13, 11 November 2013.

[22]          http://www.economist.com/blogs/economist-explains/2013/09/economist-explains-1.

[23]         M. Wiberg, We tried a Tobin tax and it didn’t work, Financial Times, 15 Aptil 2013. Contra, B. Ségol, Europe’s Tobin taxi s designed to work, Financial Times, 17 April 2013.

[24]             Federico Fabbrini, The financial transaction tax: legal and political challenges towards a Euro-zone Fiscal    Capacity, Centro studi sul federalismo, October 2013.

Call For Papers – The Thousand Faces of the Four Freedoms

KSLR European Law Blog hereby invites you to submit abstracts on the topic of  “The Thousand Faces of the Four Freedoms

The EU internal market – the embodiment of the four fundamental freedoms of goods, services, persons and capital – has arguably been one of the EU’s most successful and indeed influential constructs. However, like most EU concepts, it is troubled by divergent interpretations. This has led to great debate by various commentators, and it is these plentiful widespread arguments to which we seek discussion for the blog. Articles and case comments on any areas related, directly or indirectly, with any one of the EU’s four freedoms are welcomed.

Please submit abstracts of no more than 250 words by 4 November 2013 to adrienne.m.yong@kcl.ac.uk and agne.limante@kcl.ac.uk. We only accept abstracts relating to EU law.

Authors of selected abstracts will be informed within two weeks. A full paper (1,500 to 2,000 words) should be submitted by 9 December 2013. The style guidelines may be found at http://kslr.org.uk/blogs/europeanlaw/about-us/. The articles resulting from selected abstracts will be posted on KSLR European Law Blog website.

The call for papers is open to submissions from students and professionals from the UK and abroad but only specific to EU law.

Please email the above addresses if you have any further questions. We look forward to hearing from you!

KSLR EU Law Blog is a blog run by the students of the King’s College London and forms a part of the KCL Student Law Review. The blog is an informal academic forum in which law students and professionals express their opinion EU law issues and are informed about recent developments in EU law. You can like us on Facebook or follow us on Twitter @EUKSLR

Italian Golden Shares – a Never-Ending Story?

Jelena Ganza

PhD candidate, Dickson Poon School of Law, King’s College London


The obligation of sincere co-operation[i] of all Member States entails, inter alia, the national governments to comply with judgements of the Court of Justice of the European Union and adjust national measures accordingly. Timely and appropriate compliance initiatives would be seen as acting in good faith and in line with the sincere co-operation principle. Persistent non-compliance with judgements remains a problem and it particularly arises in cases where national governments’ influence over former strategic state-owned enterprises (SOEs), such as the largest Italian energy/oil company ENI, the former State telecommunication monopoly Telecom Italia and dominant electricity giant ENEL, is at stake.

This non-compliance stems from the basic conflict between the liberalisation aims of the Union and egoistic interests of certain Member States, which sought to retain influence over strategic industries by employing specific Control Enhancing Mechanisms called ‘golden shares’. Golden shares are the special class of shares introduced for the sole benefit of the ‘former owner’ – the State. These mechanisms aim at enhancing governmental control after privatisation, thus protecting important industries from turbulences of the free market. A typical golden share could have the following structure: where direct influence was lost due to privatisation, special powers, such as the power to veto the usage and disposal of strategic assets and the right to appoint directors, is attached to the golden shares held by the State.

These mechanisms are eagerly employed by States and ever so eagerly battled by European Commission and the Court. Golden shares are illegal, unless justified by overriding public interest and the necessity to protect public security, are legally certain, appropriate and non-discriminative.[ii] The justification criterion is narrow, however some governments were not only willing to face the Court, but were also determined to continue using already overruled golden shares post-judgement. Such tactics allow the matters to drag, contributing to a free-rider problem, which in turn means acting in bad faith and contrary to the principle of sincere co-operation, thus causing obstinate non-compliance and undermining the authority of the Court.

There are fifteen cases on golden shares in total and only in one of them they were justified.[iii] After the condemning judgement is passed, the State in question is obliged to comply without delay and either to severely restrict its golden shares or to repeal them altogether. Taking into account the success rate on justifying golden shares, it could be ascertained that following a condemning judgement the State in question is obliged not to try and amend but repeal them, since passing the justification test is a challenging task. Some States have disclosed a remarkable persistence in non-compliance alongside the determination to retain golden shares in spite of condemning judgements and looming sanction threats. Italy could be seen as one of such examples of persistent bad-faith compliance with four cases upon it, three of which relate to obstinate golden share Decree-Law 332/1994.[iv] Italian authorities have not addressed judgements in good faith and the same golden share measures were effective for more than a decade post-judgement.

The first ruling on golden shares has been on Italian Decree-Law 332/1994, which governed privatisation of SOEs.[v] Article 2 of the Decree-Law prescribed the implementation of further Decrees which would create a golden share in certain strategic companies. The Decree-Law did not infringe the Treaty by itself, as it merely empowered certain authorities to ‘activate’ it by further company-specific Decrees, stating which company shall be protected and how. Since the Decree-Law does not infringe the Community law per se – as long as the exercise of golden shares (laid down in further Decrees) passes the justification test – it becomes ‘untouchable’ in a way that it allows for a numerous amendments to ‘activating’ Decrees.  If golden shares ought to be found applied in unjustified manner, the ways in which they are applied could be changed, without the necessity to change the Decree-law itself. The conditions for exercise of golden shares, or more precisely – their absence, have become the subject of the Case C-58/99 in which the Commission sued Italy under what is now Article 258 TFEU. In absence of any justifications, in 2000 the Court found that the application of golden has been illegal. Even though the Italian government has expressed its willingness to comply prior to the judgement, no adequate amendments were undertaken.

The amendments which aimed at justifying the golden shares at stake were transposed into Article 66 of Financial Law No 488 of 23/12/1999 and the ‘activating’ Decree on 11/02/2000.[vi] This compliance measure aimed to provide a detailed explanation under which circumstances and how the Decree-Law 332/1994 should be executed, but failed to do so. These amendments were of declamatory character as they were merely repeating the requirements of the justification, while failing to specify what precisely the circumstances for their exercise are. This in turn retained the possibility of further disputes over legality of golden shares, which inevitably followed. The compliance initiative of Article 66 of No 488 acted as a smoke screen dispersing the attention from active golden shares. Acting in good faith would entail the Italian government, first and foremost, to abstain from vague and inadequate justification attempts which delayed final compliance as well as to abstain from implementation of new golden shares. Nonetheless, in 2001 following the condemning judgement in C-58/99, the Italian government implemented another golden share Decree-Law 192/2001, which has been overruled by the Court in C-174/04.[vii] In that case the Italian government tried once again to fiddle with the golden share amendments, but after being threatened with sanctions under Article 260 TFEU, it has fully abrogated contested provisions in 2006. Italian authorities have complied with the judgement on C-174/04 but it took one unsuccessful amendment and potential of application of penalties to achieve this.

As for the first Italian case on golden shares, the Article 2 of Decree-Law 332/1994 became subject of the preliminary ruling in Federconsumatori and later in C-326/07. In 2007 the Court has once again pointed on the incompatibility of the Decree-Law 332/1994 with the Community law in Federconsumatori, confirming the obstinacy of the golden shares. In this case the golden shares emerge in a newly amended format after yet another justification attempt via Article 4(227) to (231) Law 350 of 24/12/2003 and implementing Decree of 10/06/2004.[viii] This justification attempt emerged as a legislative answer to the Commission’s formal letter sent in February 2003, a second action under Article 258 TFEU on the Decree-Law 332/1994. The Italian authorities undertook to introduce new amendments by the end of 2003. The Law 350 was implemented in time, however, it did not contain justifications, but merely created a platform for further justification, by further Decree which was implemented in June 2004. However, the latter amendments were also insufficient to justify the use of golden shares. The new provisions of Law 350 alongside the Decree of 2004, have limited golden shares and introduced justifications based on ‘real and serious risk’ without specifying what exactly constitutes such risk.

These amendments became subject of the second condemning judgment in 2009 on C-326/07. Since compliance did not follow and no drafts were submitted for a review, the Commission proceeded with sanction-threats under Article 260 TFEU.  On 20 May 2010 Italy’s then Prime Minister Berlusconi has issued a Decree which aimed at addressing the Commission’s concerns and the Court’s ruling(s) by amending the criteria for execution of special powers laid down in ‘activating’ Decree 2004.[ix] The compliance measure of Berlusconi’s Decree of 2010 appears to be even more controversial, as it comprised of just one Article that in turn comprised of a single sentence which repeals contested justifications of Decree 2004! [x]   Berlusconi’s Decree repeals Article 1(2) of 2004 Decree (the one that laid down the criteria for exercise of special powers of Decree-Law 332/1994 and has been overruled by the Court in C-326/07). By eliminating the sole justifications of exercise of golden shares Berlusconi has ‘addressed’ the judgment. The only justification of special powers has now been repealed and this ‘compliance initiative’ does neither justify nor eliminate golden shares as such. Berlusconi’s Decree of 20 May 2010 appears to be a misleading measure that only aimed at further procrastination, acting as another smoke screen.

On 16 February 2011 the Commission has started the second stage of infringement proceedings and issued a reasoned opinion urging Italy to comply. During that time the Italian government has been going through one of the most difficult economic and political situations in its modern history: the European Debt crisis.  It has been a ‘lucky co-incidence’ that the need to adopt new golden share amendments has co-incised with some radical changes within the Italian government. Berlusconi and his government had to resign on 12 February 2011 while the new ‘technocratic government’ had to be formed in order to implement severe austerity measures. A new Prime Minister has been formally appointed – Mario Monti, the former EU Competition Commissioner, known for his tough stance on pro-European integration and competition enhancement. The technocratic government would stay in office until the elections in April 2013. By that time several ‘unpopular’ economic and social reforms have to be introduced and new provisions on golden shares would fall within that scope.

After more than a decade of procrastination, the Italian government seems to have finally addressed the issue of golden shares overruled back in 2000 by significantly amending the original provisions by new Decree-Law No 21 of 15 March 2012.[xi] This new Decree-Law 21/2012 establishes a notion of ‘strategic assets’ which are subject to golden shares and introduces a ‘fit and proper’ test for potential investors who seek participation in control of strategic companies. The golden share provisions now appear to have a considerably narrower scope of application and increased legal certainty. But yet again, the Law has been amended, not repealed, which in turn has the potential to be incompatible with EC law.  The Commission is currently analysing new provisions and awaits the implementation of the ‘activating’ Decrees which would further establish the conditions for the applications of golden shares. Whether or not Italy has finally complied with both C-58/99 and C-326/07 remains to be seen, while the battle for illegal golden shares continues, and State-driven protectionism is on the rise due to economic crisis.

[i] The obligation of sincere co-operation has been previously enshrined by the Article 5 of the Treaty of Rome, then became Article 10 EC and has been in principle replaced by 4(3) TEU which states: ‘Pursuant to the principle of sincere cooperation, the Union and the Member States shall, in full mutual respect, assist each other in carrying out tasks which flow from the Treaties. The Member States shall take any appropriate measure, general or particular, to ensure fulfilment of the obligations arising out of the Treaties or resulting from the acts of the institutions of the Union. The Member States shall facilitate the achievement of the Union’s tasks and refrain from any measure which could jeopardise the attainment of the Union’s objectives.’

[ii] Criminal proceedings against Sanz de Lera and Others (C 163, 165 & 250/94), 14 December 1995, paras. 23-28, the Commission accepted that fundamental freedoms may be restricted by national measures justified on grounds of public policy, public security or public health or by overriding reasons in the public interest, but only in so far as there is no Community harmonising legislation providing for measures necessary to ensure the protection of the fundamental interests of the State. These measures have to meet the requirement of legal certainty and proportionality, see also the Court’s judgement Commission v Italy, C-326/07 of 26 March 2009, at para. 14; Commission v Portugal, C-367/98, judgement of 4 June 2002, at para 48;

[iii] Commission v. Italy, C-58/99, judgment of the CJEU of 23 May 2000; Commission v. France, C-483/99, 4 June 2002; Commission v. Belgium, C-503/99, 4 June 2002 (justified); Commission v. Portugal,  C-367/98, 4 June 2002; Commission v. United Kingdom, C-98/01, 13 May 2003; Commission v. Spain, C-463/00, 13 May 2003; Commission v. Italy C-174/04, 02 June 2005; Joined cases C-282/04 and C-283/04, Commission v. Netherlands, 28 September 2006; Federconsumatori v. Commune di Milano, C-463/04 and C-464/04, referred to the Court for preliminary ruling, 6 December 2007; Commission v. Germany, C-112/05, 23 October 2007; Commission v. Spain, C-274/06, 14 February 2008; Commission v. Spain, C-207/07, 17 July 2008; Commission v. Italy, C-326/07, 26 March 2009; Commission v. Portugal , C-171/06, 8 July 2010; Commission v. Portugal, C-543/08, 11 November 2010

[iv] (Italian Privatisation Law as amended), Decreto del Presidente del Consiglio dei Ministri, definizione dei criteri di esercizio dei poteri speciali, di cui all’art. 2 del decreto-legge 31 maggio 1994, n. 332, convertito, con modificazioni, dalla legge 30 luglio 1994, n. 474; Decree-Law No 332 of 31 May 1994 (GURI No 126 of 1 June 1994), converted, after amendment, into Law No 474 of 30 July 1994, (GURI No 177 of 30 July 1994)

[v] Decreto del Presidente del Consiglio dei Ministri, definizione dei criteri di esercizio dei poteri speciali, di cui all’art. 2 del decreto-legge 31 maggio 1994, n. 332, convertito, con modificazioni, dalla legge 30 luglio 1994, n. 474; Decree-Law No 332 of 31 May 1994 (GURI No 126 of 1 June 1994), converted, after amendment, into Law No 474 of 30 July 1994, (GURI No 177 of 30 July 1994)

[vi] The original text of the Art.66 of Financial Law No 488/1999 (LEGGE 23 dicembre 1999, n.488, Disposizioni per la formazione del bilancio annuale e pluriennale dello Stato (legge finanziaria 2000) could be found in Italian at: http://www.normattiva.it/uri-res/N2Ls?urn:nir:stato:legge:1999;488 Gazzetta Ufficiale, n. 302 del 27-12-1999, for Implementing Decree of the Prime Minister 11/02/2000 see http://gazzette.comune.jesi.an.it/2000/40/5.htm

[vii] The law titled ‘Urgent provisions to ensure the liberalisation and privatisation of specific public service sectors’, GURI No 170 of 24 July 2001, published in Italian Official Gazette No 120 on 25 May 2001, the original text could be found at: http://www.normattiva.it/uri-res/N2Ls?urn:nir:stato:decreto-legge:2001;192,

[viii] Gazzetta Ufficiale No 299 of 27 December 2003 and Gazzetta Ufficiale No 139 of 16 June 2004

[ix] Decreto Del Presidente Del Consiglio Dei Ministri (DPCM) 20 maggio 2010 (published in Italian Official Gazette n.117 del 21-5-2010 ) (10A06506)

[x] Decreto Del Presidente Del Consiglio Dei Ministri 20 maggio 2010 (published in Italian Official Gazette n.117 del 21-5-2010 ) (10A06506)

[xi] Decreto-Legge 15 marzo 2012, n. 21  Norme in materia di poteri speciali sugli assetti societari nei settori della difesa e della sicurezza nazionale, nonche’ per le attivita’ di rilevanza strategica nei settori dell’energia, dei trasporti e delle comunicazioni. (12G0040) (published in Italian Official Gazette n.63 del 15-3-2012)