Brussels, 19th March 2003
Free movement of capital: Commission asks Germany to justify its Volkswagen law
The European Commission has decided to send a formal request to Germany to provide justification concerning certain provisions of the 1960 Volkswagen law (VW-law), as subsequently modified and reflected in the company's statutes. This state measure, based on a 1959 agreement between the Bund and the Land of Lower Saxony, de facto today reserves some special rights to the Land of Lower Saxony which with share voting rights of roughly 21% has over the past years traditionally been the biggest single shareholder of the German carmaker. The Commission is concerned that certain provisions of that law could act as a disincentive on investment from other Member States, in violation of EC Treaty rules on the free movement of capital (Article 56) and the right of establishment (Article 43). The Commission's request takes the form of a letter of formal notice, the first stage of infringement procedures under Article 226 of the EC Treaty. In the absence of a satisfactory reply within two months, the Commission may decide to issue a formal request to the German Government to amend the law in the form of a so-called 'reasoned opinion'.
The Commission is concerned that the following provisions of the VW-law (Gesetz über die Überführung der Anteilsrechte an der Volkswagenwerk Gesellschaft mit beschränkter Haftung in private Hand, i.e. Act on the transfer of shares in Volkswagenwerk GmbH to private partnership, in its version of 31.07.1970) may dissuade investors in other Member States from the acquisition of shares and capital investments in Volkswagen AG and are, as a result, liable to hinder the exercise of the free movement of capital and the freedom of establishment guaranteed by the EC Treaty:
In expressing its concerns, the Commission takes account both of the ruling of the European Court of Justice of 23 May 2000 (Commission v Italy, case C-58/99), according to which, inter alia, a right to appoint members in the company's Board of Directors is liable to be contrary to the obligations of a Member State under Articles 43 and 56 of the Treaty, and of the Court's rulings of 4 June 2002 --Commission v France (C-483/99), Commission v Belgium (C-503/99) and Commission v Portugal (C-367/98) -, according to which legislation which is liable to dissuade investors in other Member States from capital investments may render the free movement of capital illusory, and thus constitute a restriction on movement of capital.
Furthermore, in its decision of 5 November 2002 ("Überseering", case C-208/00), the European Court of Justice has specified that as a general rule the acquisition of shares in a company incorporated and established in another Member State is covered by the Treaty provisions on the free movement of capital, and for cases in which the shareholding confers a definite influence over the company's decisions and allows the shareholders to determine its activities, it is the Treaty provisions on freedom of establishment which apply.
The Commission is consequently concerned that the above provisions of the VW-law could be incompatible with Community law both on the freedom of capital movement and on the right of establishment as guaranteed by Articles 56 and 43 of the Treaty respectively.
Recent general information on infringements concerning all Member States may be consulted at: