C-122/87 Commission v Italy

Judgment of the Court of 24 May 1988. - Commission of the European Communities v Italian Republic. - Failure of a Member State to fulfil its obligations - Exemption from VAT of the services of veterinary surgeons. - Case 122/87. European Court reports 1988 Page 02685

Summary Parties Grounds Decision on costs Operative part

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Tax provisions - Harmonization of laws - Turnover taxes - Common system of value-added tax - Exemptions under the Sixth Directive - Exemption of the provision of care in the exercise of the medical and paramedical professions - Services provided by veterinary surgeons - Chargeable to tax

( Council Directive 77/388/EEC, Art . 13 ( A ) ¹ ( c ) )

Article 13 ( A ) ¹ ( c ) of Directive 77/388 concerning exemption from value-added tax of care provided in the exercise of the medical and paramedical professions must be interpreted as meaning that the exemption provided for

therein does not extend to services provided by veterinary surgeons . As is expressly indicated in most of the language versions of the directive, that provision relates to care administered to persons and excludes care administered to animals .

In Case 122/87

Commission of the European Communities, represented by Giuliano Marenco and Daniel Calleja, members of its Legal Department, acting as Agents, with an address for service in Luxembourg at the office of G . Kremlis, Jean Monnet Building, Kirchberg,

applicant,

v

Italian Republic, represented by Luigi Ferrari Bravo, Head of the Department of Contentious Diplomatic Affairs, acting as Agent, assisted by Ivo Braguglia, Avvocato dello Stato, with an address for service in Luxembourg at the Italian Embassy,

defendant,

APPLICATION for a declaration that by exempting from value-added tax the services provided by veterinary surgeons the Italian Republic has failed to fulfil its obligations under the EEC Treaty,

THE COURT

composed of : Lord Mackenzie Stuart, President, G . Bosco, J . C . Moitinho de Almeida and G . C . Rodríguez Iglesias ( Presidents of Chambers ), T . Koopmans, U . Everling, Y . Galmot, C . Kakouris and F . Schockweiler, Judges,

Advocate General : J . L . da Cruz Vilaça

Registrar : H . A . Ruehl, Principal Administrator

having regard to the Report for the Hearing and further to the hearing on 15 March 1988,

after hearing the Opinion of the Advocate General delivered at the sitting on 15 March 1988,

gives the following

Judgment

Grounds

1By an application lodged at the Court Registry on 8 April 1987, the Commission of the European Communities brought an action under Article 169 of the EEC Treaty for a declaration that by exempting from value-added tax the services provided by veterinary surgeons in the exercise of their profession the Italian Republic had failed to fulfil its obligations under the Sixth Council Directive ( 77/388/EEC ) of 17 May 1977 on the harmonization of the laws of the Member states concerning turnover taxes - Common system of value-added tax : uniform basis of assessment ( Official Journal 1977, L 145, p . 1 ) (" the Sixth Directive ").

2By virtue of the combined provisions of Article 10 of Decree No 633 of the President of the Republic of 26 October 1972, as amended by Decree No 24 of the President of the Republic of 29 January 1979 ( Gazzetta Ufficiale della Repubblica Italiana ( Official Gazette of the Italian Republic ) No 30, 31.1.1979, p.983 ) and Article 99 of Royal Decree No 1265 of 27 July 1934, services provided by veterinary surgeons are exempt from value-added tax ( VAT ).

3Considering that exemption to be contrary to the Sixth Directive and in particular Article 2 thereof, the Commission, by letter of 5 June 1985, called upon the Italian Republic, pursuant to the first paragraph of Article 169 of the EEC Treaty, to submit its observations . The Italian Government did not concede that it was in breach of the Treaty and therefore, on 17 June 1986, the Commission delivered to it a reasoned opinion . In the absence of any response thereto the Commission brought the present action .

4Reference is made to the Report for the Hearing for a fuller account of the Italian legislation, the course of the procedure and the submissions and arguments of the parties, which are mentioned or discussed hereinafter only in so far as is necessary for the reasoning of the Court .

5Article 2 of the Sixth Directive provides :

"The following shall be subject to value-added tax :

1 . The supply of goods or services effected for consideration within the territory of the country by a taxable person acting as such ... ".

6Article 4 provides :

"1 . 'Taxable person' shall mean any person who independently carries out in any place any economic activity specified in paragraph 2 ... ".

The activities specified include all services .

7The Commission maintains that by virtue of the above-mentioned provisions VAT must be charged on the services provided by veterinary surgeons .

8In the pre-litigation procedure, the Italian Government relied in its defence upon Article 13 ( A ) ¹ ( c ) of the Sixth Directive, which provides for the exemption of certain services from VAT . It contends that the services provided by veterinary surgeons come within the scope of that provision, which refers to the provision of care "in the exercise of the medical and paramedical professions as defined by the Member State concerned ".

9It must be observed, without its even being necessary to consider whether the term "medical and paramedical professions" might include veterinary surgeons, that all the language versions of the part of Article 13 cited above, with the exception of the English and Italian versions, expressly limit the exemption of the provision of care to care administered "to persons" and that that limitation unambiguously excludes care administered to animals from the scope of Article 13 ( A ) ¹ ( c ).

10That interpretation is reinforced by the fact that Article 28 ³ ( b ) of the Sixth Directive allows those Member States which, upon its entry into force, exempted the services provided by veterinary surgeons from VAT ( the Italian Republic did not ) to continue to do so during a transitional period . That transitional provision would be devoid of purpose if Article 13 were to be interpreted as requiring definitive exemption of the same services .

11It should be noted, lastly, that at the hearing the Italian Republic finally conceded that the Commission' s action was well founded .

12In view of the foregoing considerations, the Commission' s application must be upheld .

Costs

Costs

13Under Article 69 ² of the Rules of Procedure, the unsuccessful party is to be ordered to pay the costs . Since the Italian Republic has failed in its submissions, it must be ordered to pay the costs .

Operative part

On those grounds,

THE COURT

hereby :

¹ Declares that by exempting from value-added tax the services provided by veterinary surgeons in the exercise of their profession, the Italian Republic has failed to fulfil its obligations under the Sixth Council Directive ( 77/388/EEC ) of 17 May 1977 ( Official Journal 1977, L 145, p . 1 );

Signatures

² Orders the Italian Republic to pay the costs .

O P I N I ON OF MR A D V O C A TE G E N E R AL C R UZ VILAÇA delivered on 15 March 1988* Mr President, Members of the Court,

1The present Treaty-infringement proceedings relate to the provisions of Italian law — Article 10 of Decree No 633 of the President of the Republic of 26 October 1972, as amended by Decree No 24 of the President of the Republic of 29 January 1979, in conjunction with Article 99 of Royal Decree No 1265 of 27 July 1934 — which exempt from VAT services provided by veterinary surgeons in the exercise of their profession.

2According to the Commission, that exemption is contrary to the Sixth Council Directive (77/388/EEC) of 17 May 1977 on VAT, ' in particular Article 2 thereof.

3The basic issue in this case is the interpretation of Article 13 A (1) (c) of the Sixth Directive, which provides that the Member States are to exempt from VAT 'the provision of medical care in the exercise of the medical and paramedical professions as defined by the Member State concerned' (in the Italian version: 'le prestazioni mediche effettuate nell'esercizio delle professioni mediche e paramediche quali sono definiti dagli Stati membri interessati').

* Translated from the Portuguese.

4During the pre-contentious phase and likewise at the hearing the Government of the Italian Republic explained its reasons for its view that it was entitled, under that provision, to exempt services provided by veterinary surgeons.

5The Commission, considering on the other hand that the exemption was available only for medical care provided to persons, initiated the procedure provided for in Article 169 of the Treaty, relying upon four sets of arguments which are summarized in the Report for the Hearing.

6It must be stated that the Commission's view is well founded.

7Article 2 of the Sixth Directive imposes VAT in general terms on 'the supply of. . . services effected for consideration within the territory of the country by a taxable person acting as such'.

8Article 4 (1) defines as a taxable person 'any person who independently carries on in any place any economic activitiy specified in paragraph 2, whatever the purpose or results of that activity'. That paragraph mentions 'supplying services', including the 'activities of the professions'.

9The provisions referred to reflect the general principle applicable to the structure of Community VAT, which is expressed in the preambles to the Second and Sixth Directives.

10In the terms of the fifth recital in the preamble to the First Directive 2' a system of value-added tax achieves the highest degree of simplicity and of neutrality when the tax is levied in as general a manner as possible and when its scope covers all stages of production and distribution and the provision of services'.

11The generalized and uniform application of VAT to taxable transactions is therefore essential to the attainment of the objectives of the tax, ensuring the neutrality of the tax treatment of internal and international transactions and guaranteeing simplicity and financial effectiveness in the application of the tax; moreover, the use of a uniform basis for calculation of the Community's own resources is thereby facilitated. 3

12That is the premise underlying the fourth recital in the preamble to the Second Directive, 4 which states that 'in order to enable the system to be applied in a simple and neutral manner and to keep the standard rate of tax within reasonable limits,

2690 it is necessary to limit special systems and exceptional measures'.

13To that end, the Sixth Directive laid down for all the Member States a uniform basis of assessment for VAT and generalized the tax as far as possible.

14In particular, the Sixth Directive laid down a uniform list of exemptions 'so that the Communities' own resources may be collected in a uniform manner in all the Member States' (11th recital).

15For its part, the case-law of the Court is significant in that there has been a refusal to interpret broadly the exemptions provided for in the directive where no elements of interpretation are shown to exist which make it necessary to go beyond the literal purport of the provisions in which they appear, in particular Article 13. 5

16In the case of the exemption provided for in Article 13 A (1) (c), with which the present proceedings are concerned, even though that provision contains a reference to the definitions adopted by the Member States, it cannot be denied that the expressions used by the Community legislature have a common meaning, which circumscribes the exercise of the discretionary power of the Member States, and the objective must not be forgotten of determining 'the basis of assessment of value-added tax in a uniform manner according to the Community rules'. 6

17Since no provision of the directive makes clear what is to be understood by the term 'the provision of medical care in the exercise of the medical... profession' it is necessary to rely upon the meaning attributed to that term in everyday language. In everyday language, the practice of medicine or the provision of medical care does not normally include the services of veterinary surgeons but only services provided to persons — the expression medical profession or practice must not be confused with 'health care' as a whole, a term which might indeed include the services of veterinary surgeons.

18That would seem to be the meaning to be attributed to the Italian version of the Sixth Directive — which speaks of 'pres tazioni mediche' and 'professioni mediche' without giving further details — unless there are substantive reasons for adopting a different interpretation.

19However, no such reasons exist and furthermore all the elements of interpretation available support the Commission's conclusion.

20That is borne out by a comparison of the Italian version with the German, Danish, French and Dutch language versions which, referring to the provision of care to persons, confirm expressis verbis that there was no intention to go beyond the ordinary meaning of the terms used.

21The context in which the paragraph referring to the exemption at issue is placed — between the paragraph referring to hospital and medical care provided by public bodies or other hospital establishments or centres for medical treatment and the paragraph relating to supplies of human organs, blood and milk — appears to confirm (as was also emphasized by the Commission) that it was intended to cover a set of activities of a particular social and human dimension, connected with human health. 7

22The same approach is to be inferred, a contrario, from Article 28 (3) (b), in conjunction with Point 9 of Annex F, to which the Commission referred. Article 28 lays down transitional conditions which allow the Member States to continue to exempt certain transactions for a period which is in principle limited, provided that such exemptions already existed when the directive entered into force (which, as both parties recognize, was not the case where the services of veterinary surgeons in Italy were concerned); on the other hand, Article 13 A lays down a common list of exemptions favouring certain activities in the public interest which are imposed on the Member States, without any limitation as to time.

23As they are expressly covered by the transitional conditions laid down by Article 28, the services of veterinary surgeons cannot at the same time be subject to the common system of exemptions laid down in Article 13.

24Thus, Article 13 A (1) (c) can only be interpreted as relating exclusively to the provision of care to persons in the exercise of the medical profession and not to care administered to animals by veterinary surgeons.

25Moreover, the Italian Government finally conceded that its position was based on an incorrect interpretation of the directive and it therefore abandoned its defence against the Commission's allegations; at the same time, in response to a request from the Commission, it announced its intention to amend the contested legislation so as to render the services of veterinary surgeons subject to VAT.

26Since that amendment has not been made in due time, the Court should uphold the Commission's application, declare that the Italian Government has failed to fulfil its obligations under the Treaty and order it to pay the costs.

Notes

(1) Official Journal 1977, L 145, p. 1.

(2) Council Directive 67/227/EEC of 11 April 1967, Official Journal, English Special Edition 1967, p. 14.

(3) I gave a fuller account of the VAT system in my Opinion in Joined Cases 138 and 139/86 Direct Cosmetics, delivered at the sitting on 27 January 1988 (see [1988] ECR 3937 and page 3749).

(4) Council Directive 67/228/EEC of 11 April 1967, Official Journal, English Special Edition 1967, p. 16.

(5) See judgment of 11 luly 1985 in Case 107/84 Commission v Federal Republic of Germany [1985] ECR 2655, paragraph

(20) .

(6) Judgment of 14 May 1985 in Case 139/84 Van Dijk's Boekhuis [1985] ECR 1405, paragraph 19.

(7) That is the interpretation underlying the recent judgment of 23 February 1988 in Case 353/85 Commistion v United Kingdom [1988] ECR 817.