OPINION OF MR REISCHL — CASE 161/78 CONRADSEN v MINISTERIET FOR SKATTER OG AFGIFTER

Mr President,

Members of the Court,

P. Conradsen A/S, a company limited by shares, the plaintiff in the main action, was formed by a memorandum of association of 28 June 1974. The nominal capital of the company was 1000000 Danish kroner which was raised in such a way that two of the founder members, Per Conradsen and Inge Olsen, contributed the assets and liabilities of the firm P. Conradsen which had been in existence since 1926 and had hitherto been carried on by them as a partnership. The figures for the assets and liabilities given in the opening balance sheet prepared as at 1 January 1974 were taken as their value. The assets included goods in stock which had been bought for Dkr 3925804 but had only been entered in the balance sheet at Dkr 2748064, that is to say, reduced by 30 % (Dkr 1177740); on the liabilities side of the balance sheet there was an item of Dkr 750000 described as depreciation on goods purchased under binding contracts.

This procedure was in accordance with Consolidated Law No 255 of 10 May 1973 concerning the valuation for tax purposes of stock and the like (Varelagerlov), since this law allows part of the depreciation in the value of assets to be shown in the books for the financial year in which this loss probably occurred. According to Articles 1 (1) and (4) of the said Law, when persons engaged in industry or trade, including companies, calculate their taxable income and capital, they may elect to value the goods in stock at the end of their financial year at the current market price, or at the purchase price or at the cost of manufacture and to reduce the figure so ascertained by not more than 30 %. The undertaking concerned may effect this writing down at its discretion and is also free to decide to what extent, within the upper limits permitted by the Consolidated Law, it shall be applied. Furthermore Articles 3 to 5 inclusive of this Law allow deductions to be made from the value of goods which have been bought pursuant to binding contracts entered into before the end of the relevant financial year for delivery during the following financial year. The permitted deduction was also initially 30 % but later on was replaced by a degressive rate which was 25 % in 1973 and dropped to zero in 1976 owing to difficulties in assessing the value of the binding contracts.

In all the Member States operations whereby capital is transferred or raised are subject to a duty on this capital payable by the recipients thereof. This capital duty was by virtue of Council Directive 69/335/EEC of 17 July 1969 concerning indirect taxes on the raising of capital (Official Journal, English Special Edition 1969 (II), p. 412) harmonized in the original Member States. The aim of that directive was to see to it that eventually the rate of capital duty was the same in every Member State. Article 7. (1) thereof provided that until the Council fixes common rates the rate of capital duty may not exceed 2 % or be less than 1 %. Article 13 of the directive provided that the Member States had until 1 January 1972 to bring into force such provisions by way of law, regulation or administrative action as may be necessary to comply with the provisions of this directive.

The directive, which at the date of the accession of the Kingdom of Denmark on 1 January 1973 formed part of the acquis communautaire [all the regulations, decisions, directives, etc. adopted under the Treaties, and all decisions taken since the Communities were established], was adopted in the Act of Accession but with this difference that the date by which the Member States had to bring into force such provisions by way of law, regulation or administrative action as may be necessary to comply with the provisions of the directive, namely 15 January 1972, was postponed until 1 July 1973 (Annex XI to the Act of Accession, Section VI. Taxation, paragraph 3).

The taxation laws of the Kingdom of Denmark which before the accession of that country provided for duty on securities but not for any capital duty was amended in accordance with Directive 69/335/EEC by means of two Laws of 23 May 1973 which entered into force on 1 July 1973. Law No 283 abolished duty on securities which was contrary to the directive. Pursuant to Article 3 (2) of the directive the Danish Government in Law No 284 exercised the right, for the purposes of charging capital duty, not to consider as capital companies other kinds of companies operating for profit. Consequently according to Article 1 of that Law limited partnerships are not subject to any duty, but under Article 4 (1) the conversion of a company which is not liable to duty into one which is liable is treated as the formation of the latter company, so that capital duty is payable in accordance with the provisions relating to the formation of a capital company. The following rules for levying capital duty in these circumstances are laid down in Article 6(1) thereof:

Pursuant to Council Directive 73/79 of 9 April 1973 varying the field of application of the reduced rate of capital duty provided for in respect of certain company reconstruction operations by Article 7 (1) (b) of the directive concerning indirect taxes on the raising of capital, and pursuant to Council Directive 73/80 of 9 April 1973 fixing common rates of capital duty (Official Journal L 103 of 18 April 1973, p. 13 and p. 15) the rate of duty was reduced by the Danish Law No 583 of 26 November 1975 to 1 % as from 1 January 1976.

When the Amtsskatteinspektorat (the intermediate tax authority) received the assessment made by Conradsen it made an additional assessment, based on a correction of the amount declared by the company, to include the sums by which the value of the goods in stock and the goods ordered under binding contracts had been written down, Dkr 1927740 (1177740+ 750000), in the amount liable to capital duty.

After objecting to no avail Conradsen brought an action before the Byret, Copenhagen. This court dismissed the action on 7 December 1976. The company appealed against this decision to the Østre Landsret which by an order of 30 June 1978 referred the following questions to the Court for a preliminary ruling:

My comments on these questions are as follows:

Article 5 (1) (a) of Directive 69/335/EEC which the Court is asked to interpret reads as follows:

1 Translated from the German.