Tax on conversion of bearer stocks – Infringement of EU Law

Patrice Delacroix 10 October 2014


On 9 October 2014, the Court of Justice of the European Union (below ‘CJEU’) has rendered its decision in case C-299/13 relating to the compatibility of the Belgian tax on the conversion of bearer securities with EU law, and in particular with Directive 2008/7/EC of 12 February 2008 concerning indirect taxes on the raising of capital.

As to the facts of the case, a Belgian resident held together with its two children a number of bearer securities issued by two public limited companies based in Belgium. On 21 December 2011, the securities were converted into registered securities in accordance with the Act of 14 December 2005 on the abolition of bearer securities but the conversion could not take place prior to the coming into force on 1 January 2012 of the tax on bearer securities introduced by the Act of 28 December 2011 on miscellaneous provisions.

The Belgian resident brought an action before the Belgian Constitutional Court for annulment of the provisions imposing that tax on the grounds of infringement, inter alia, of Article 5(2)(a) of Directive 2008/7 which provides that Member States shall not subject the following to any form of indirect tax whatsoever: the creation, issue, admission to quotation on a stock exchange, making available on the market or dealing in stocks, shares or other securities of the same type, or of the certificates representing such securities, by whomsoever issued.

The Belgian resident took indeed the view that, since the conversion of the bearer securities is mandatory, it makes part of the ‘overall transaction’ of capital raising and can therefore not be subject to any indirect tax.

The Belgian Constitutional Court was uncertain whether, in the light of the obligation to convert bearer securities by 31 December 2013 at the latest, the tax had to be considered as an indirect tax in the meaning of Article 5(2) of Directive 2008/7.

In May 2013, the Belgian Constitutional Court therefore requested a preliminary ruling to the CJEU.

In the present case, the CJEU considered that, while it is true that Article 5(2)(a) of Directive 2008/7 does not expressly mention the conversion of stocks, the fact remains that converting bearer stocks into dematerialised securities or registered securities, which was made compulsory under the Act of 14 December 2005 on the abolition of bearer securities, falls within the issue of stocks in the meaning of Article 5(2)(a) of Directive 2008/7.

Therefore, the CJEU considered that by levying tax on that conversion, Article 167 of the Belgian Code on miscellaneous levies and taxes actually comes down to taxing the very issue of that security as it makes an integral part of an overall transaction with regard to the raising of capital, thereby undermining the effectiveness of Article 5(2)(a) of Directive 2008/7.

It follows that Article 5(2)(a) of Directive 2008/7 must be interpreted as meaning that the prohibition to make the issue of stocks liable to indirect tax, in any form whatsoever, prevents from taxing the conversion of already issued bearer stocks into dematerialised securities or registered securities.

In the light of the foregoing considerations, the CJUE ruled that Article 5(2) of Directive 2008/7 precludes from taxing the conversion of bearer securities into registered securities or dematerialised securities such as those at issue in the main proceedings and that such a tax cannot be justified under other provisions of the Directive (e.g. Article 6).

You will find a direct link to the decision taken by the CJUE.