The golden shares held by the Portuguese state in Portugal Telecom constitute a restriction on the free movement of capital because they are liable to discourage investments by operators in other member states. Thus ruled the EU Court of Justice, on 8 July1.

Portugal Telecom (PT) was privatised in 1995 and, in accordance with national legislation, the articles of association of companies due to be privatised may, where grounds of national interest so require, establish golden shares, which are intended to remain the state’s property. Such shares give the state a right of veto over key decisions on the company’s management. The Portuguese state was thus given 500 golden shares in PT to which certain privileges are attached. According to the European Commission, these shares constitute a restriction on the free movement of capital.

The court confirmed that analysis. Considering the importance of the decisions that depend on the agreement of the Portuguese state (acquisition and management of shares, divestments, amendment of articles of association), it exercises an influence over PT’s management that is not justified by the size of its shareholding and is liable to discourage investments by operators from other member states. Such investors could not be involved in the management and control of the company in proportion to the value of their shareholdings.

TREATY CONDITION

Although the EU Treaty authorises certain measures that restrict the free movement of capital where justified in particular by public security, it subjects them to the condition that they are appropriate to secure the attainment of the objective they pursue and are proportionate to that objective. The court examined the objective invoked by Portugal, namely to ensure the security of the availability of the telecommunications network in case of crisis, war or terrorism. Such an objective may constitute a ground of public security and justify a restriction on the free movement of capital but it may only be relied on if there is a genuine and sufficiently serious threat to a fundamental interest of society. However, the court pointed out that Portugal does not state “how the holding of golden shares would make it possible to prevent such an interference with public security. Consequently, such a justification cannot be upheld”. It also found that the exercise of the special rights by the state is not subject to any specific and objective condition or circumstances. Such uncertainty constitutes serious interference with the free movement of capital, the court maintained, since it gives the national authorities a latitude so discretionary in nature that it cannot be considered proportionate to the objectives pursued.

(1) Case C-171/08, Commission v Portugal