Case Law: Leur-Bloem v. Inspecteur der Belastingdienst

4 Colum. J. Eur. L. 155 (1998)

Eric F. Hinton. LL.M. Candidate, Faculty of Law, Rijksuniversiteit Leiden.

Case C-28/95. Leur-Bloem v. Inspecteur der Belastingdienst/Onderneminger Amsterdam (Eur. Ct. J. July 17, 1997) (not yet reported).

Article 177; Jurisdiction of the Court; National legislation adopting Community provisions; Transposition; Council Directive 90/434/EEC; Merger by exchange of shares; Tax evasion or avoidance.

Facts and Procedure

Mrs. Leur-Bloem (Leur-Bloem) is a citizen of The Netherlands. She is the sole shareholder and director of two private Dutch companies engaged in the business of placing workers in temporary employment positions. It was Leur- Bloem’s objective to obtain the shares in another Dutch company, a private holding company, by exchanging shares in her two companies for shares in the third company. The result of the transaction would be that Leur-Bloem would no longer be the sole shareholder in the original companies but rather a shareholder in the holding company. In turn, the holding company would assume the position of sole shareholder of the original companies.

The Netherlands Income Tax Law of 1964 (Tax Law) governs Leur-Bloem’s proposed transaction. She seeks to obtain a tax exemption under the Tax Law based on what she alleges is a merger of the three companies. Article 14b(l) of the Tax Law provides that profits obtained from a merger may be excluded from tax liability. In defining the term “merger,” Article 14b(2)(a) of the Tax Law states that mergers include the following:

[When] a company established in the Netherlands acquires, in return for the transfer of a number of its shares together in some cases with an additional payment, possession of a number of shares of another company established in the Netherlands permitting it to exercise more than half the voting rights in the latter company, with a view to combining in a single unit, on a permanent basis from an economic and financial viewpoint, the undertaking of the acquiring company and that of another person.

Article 14b(2)(b) articulates a similar definition applicable in intra-Community as opposed to purely internal transactions. This language was included to give effect to Council Directive 90/434/EEC on the common system of taxation applicable to mergers, divisions, transfers of assets, and exchanges of shares of companies of different Member States.

Mrs. Leur-Bloem’s case is further complicated in that Article 14b(2)(b) of the Dutch Tax Law was patterned after Article 2(d) of Directive 90/434. While these two provisions were similar in substance, their wording appeared to be different. Additionally, there is evidence that The Netherlands’ legislative purpose in enacting identical requirements for share mergers in Articles 14b(2)(a) and (b) was to facilitate the single market.

In an advance ruling regarding Leur-Bloem’s proposed transaction, the Dutch tax authorities (Inspecteur der Belastingdienst) held that Leur-Bloem’s transaction did not constitute a merger by exchange of shares within the meaning of Article 14b(2)(a). The Inspecteur der Belastingdienst was of the opinion that the proposed transaction would not fuse the two subsidiaries and the holding company into a larger unit from a financial and economic view. Therefore, according to the Inspecteur, Leur-Bloem would be ineligible for the tax exemption.

Displeased with the advance ruling, Mrs. Leur-Bloem appealed the matter to the Gerechtshof te Amsterdam (Regional Court of Appeal, Amsterdam). The Gerechtshof determined that the Dutch Parliament intended Articles 14b(2)(a) and (b) to be interpreted identically. In making this determination, the Gerechtshof relied on two factors: first, the wording of the provision, and second, the Parliament’s legislative history, both indicating that internal and international scenarios should be treated in the same manner. Consequently, the Gerechtshof concluded that it was appropriate to refer the question to the ECJ, pursuant to Article 177 of the EC Treaty. The Gerechtshof petitioned the ECJ to interpret the meaning of Article 2(d) of the Directive in order to determine the meaning of Article 14b(2)(a) in the Dutch Tax Law as well as the meaning of certain terms contained in Article 11 of the Directive. Apparently uncertain of whether the ECJ had jurisdiction to answer the question in the first place, the Gerechtshof asked the ECJ the threshold jurisdictional question of whether a national court may refer questions “concerning the interpretation of the provisions and scope of a directive . . . even where the directive is not directly applicable to the specific circumstances of the case.”