This content is from: Local Insights

European Union

Commission proposes regulatory framework for electronic money

The Commission has put forward two proposals for Directives to establish a clear regulatory framework for electronic money within the EU. By creating harmonized minimum rules on the stability of institutions responsible for issuing electronic money, it aims to encourage the development of electronic commerce and promote confidence among consumers and business.

To create a level playing field with existing credit institutions, the Commission proposed that institutions issuing electronic money should be brought within the general regulatory regime of the First and Second Banking Directives by means of a Directive extending the definition of 'credit institutions'. This would allow electronic money institutions to operate throughout the EU on the basis of authorization in one member state. These institutions could be subject to prudential supervision rules contained in the Banking Directives, although where the institution in question did not carry out the full range of banking operations, not all the prudential supervision rules would apply. Issuers of electronic money could also be subject to European Central Bank reserve requirements.

The Commission also proposed a Directive to define electronic money in a technology-neutral manner. It would set rules dealing with authorization, initial capital, ongoing supervision, minimum standards of fit and proper management and operation requirements. For example, in relation to initial capital, a minimum of Ecu500,000 would be required as well as own funds and the limitation of investments to highly liquid, low risk assets.

The two proposals will be submitted to the EU Council of Ministers and the European Parliament for adoption under the co-decision procedure.

ECJ rules that forex deals are supplies for VAT purposes

The European Court of Justice (ECJ) has ruled that foreign exchange transactions are taxable supplies of services for the purposes of the VAT Directive. The issue arose in the context of proceedings in the UK between First National Bank of Chicago and the Commissioners of Customs and Excise. One of the First National Bank's activities is dealing in foreign exchange transactions, whereby one party agrees to purchase an agreed amount in one currency against the sale by it to the other of an agreed amount in another currency. First National Bank had claimed it was entitled to an input tax credit relating to the foreign exchange transactions it concluded with counterparties established in non-EU countries. The Commissioners had refused to allow the credit.

As it involved a point of interpretation of EU law, the UK High Court referred the question of whether foreign exchange transactions are taxable supplies under the Sixth VAT Directive to the ECJ. The ECJ concluded that foreign exchange transactions are supplies of services within the meaning of Article 6 of the Sixth VAT Directive, and further, that these transactions are "for consideration" and are therefore taxable, even where the bank does not charge a direct commission or fees. The ECJ noted that there is a bilateral legal relationship between the bank and its counterparty under which the two parties to the transaction give reciprocal undertakings to transfer amounts in a given currency. The rates at which the bank is prepared to sell or purchase currencies are different and are separated by a spread. The ECJ concluded that the bank does take for itself a consideration which it includes in the calculation of these rates.

The UK High Court also asked for guidance as to what was the taxable amount. The ECJ held that in foreign exchange transactions in which no fees or commission are calculated with regard to specific transactions, the taxable amount is the net result of the transactions of the supplier of the services over a given period of time.

ECJ rules that Trade Marks Directive does not allow for international exhaustion

The ECJ has ruled that national rules providing for exhaustion of trade mark rights in respect of products put on the market outside the EEA under that mark by the proprietor or with his consent are contrary to Article 7 of the Trade Mark Directive. In doing so, it rejected arguments that the Directive allowed for the principle of international exhaustion in the EU. International exhaustion is the principle that once a trade marked product is placed on the market anywhere in the world, the rights of the trade mark owner are exhausted.

The case arose from a trade mark infringement action brought by Silhouette, an Austrian company which makes and sells high fashion spectacles, against Hartlauer, which runs a chain of cut price outlets in Austria. Hartlauer obtained 21,000 out-of-fashion Silhouette frames which Silhouette had originally sold to a Bulgarian company, apparently with the stipulation that the purchasers could only sell the frames in Bulgaria or the former USSR, and were not to export them to other countries. Silhouette sought an injunction to restrain Hartlauer from selling the spectacles under the Silhouette trade mark on the grounds that it had not exhausted its trade mark rights, as the spectacles had not been put on the market in the EEA by the Silhouette or with its consent.

Article 7 of the Trade Mark Directive only refers explicitly to the principle of EU-wide exhaustion, ie the principle that a trade mark owner's rights are exhausted by putting products into circulation in the EU. Hartlauer sought to argue that this meant that the Directive left individual Member States free to provide for international exhaustion in their national laws. In rejecting this argument, the ECJ noted that "a situation in which some Member States could provide for international exhaustion while others provided for Community exhaustion only would inevitably give rise to barriers to the free movement of goods in the internal market". In other words, were the UK to provide for international exhaustion while France did not, a trade mark owner could take action in France to prevent the sale of goods originally put on the market by it in Austria. However, the same trade mark owner would be told it had exhausted its rights in relation to the same goods if it attempted to prevent their sale in the UK. This result was seen as contrary to the purpose of the Directive, which is to safeguard the functioning of the internal market.

Michael Reynolds
Allen & Overy

© 2021 Euromoney Institutional Investor PLC. For help please see our FAQs.

Instant access to all of our content. Membership Options | 30 Day Trial