C-131/91 'K' Line Air Service Europe

Judgment of the Court (Sixth Chamber) of 9 July 1992. - "K" Line Air Service Europe BV v Eulaerts NV and Belgian State. - Reference for a preliminary ruling: Rechtbank van eerste aanleg Brussel - Belgium. - VAT - Minimum base of assessment for second-hand cars. - Case C-131/91. European Court reports 1992 Page I-04513

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 ° Basis of assessment ° Sale of second-hand cars between taxable persons ° National system setting aside the basis of assessment under the Sixth Directive in favour of a minimum basis ° Not permissible

(Council Directive 77/388, Arts 11, 27 and 32)

The Sixth Council Directive on the harmonization of the laws of the Member States relating to turnover taxes is to be interpreted as precluding national legislation laying down, in respect of the sale of second-hand cars between taxable persons, a minimum basis of assessment for VAT which is different from that provided for by Article 11 of the directive, according to which the taxable amount is, in respect of supplies of goods, everything which constitutes the consideration which has been or is to be obtained by the supplier from the purchaser.

Such legislation cannot be justified either by Article 32 of the directive, which does not cover sales of second-hand goods where, because such sales are between taxable persons who have been able to exercise the right to a deduction on capital goods, there is no risk of double taxation, or by Article 27 which, whilst authorizing special derogations in order to prevent certain types of tax evasion or avoidance, does not permit a general derogation from the rules of Article 11 such as the substitution of a minimum basis of assessment for the price agreed between the parties.

In Case C-131/91,

REFERENCE to the Court under Article 177 of the EEC Treaty by Rechtbank van Eerste Aanleg te Brussel (Court of First Instance, Brussels), for a preliminary ruling in the proceedings pending before that court between

"K" Line Air Service Europe BV

and

Eulaerts NV,

Belgian State,

on the interpretation of Articles 11 and 27 of the Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes ° Common system of value added tax: uniform basis of assessment (OJ 1977 L 145, p. 1) and of Articles 9 to 11 of the EEC Treaty,

THE COURT (Sixth Chamber),

composed of: F.A. Schockweiler, President of the Chamber, G.F. Mancini, C.N. Kakouris, M. Diez de Velasco and J.L. Murray, Judges,

Advocate General: M. Darmon,

Registrar: D. Triantafyllou, Administrator,

after considering the written observations submitted on behalf of:

° Eulaerts NV by H. van den Keybus, of the Brussels Bar;

° the Belgian State, by I. Maselis, of the Brussels Bar;

° the Commission of the European Communities, by J. Foens Buhl, Legal Adviser and Pieter van Nuffel, of its Legal Service, acting as Agents;

having regard to the Report for the Hearing,

after hearing the oral observations of Eulaerts NV, represented by H. van den Keybus and M. Eulaerts, of the Brussels Bar, the Belgian State and the Commission at the hearing on 7 May 1992,

after hearing the Opinion of the Advocate General at the sitting on 24 June 1992,

gives the following

Judgment

Grounds

1By judgment of 2 May 1991, received at the Court on 16 May 1991, the Rechtbank van Eerste Aanleg, Brussels, referred to the Court for a preliminary ruling under Article 177 of the EEC Treaty a question on the interpretation of Articles 11 and 27 of the Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes ° Common system of value added tax: uniform basis of assessment (OJ 1977 L 145, p. 1, "the Sixth Directive"), and of Articles 9 to 11 of the EEC Treaty.

2That question was raised in proceedings between "K" Line Air Service Europe BV ("' K' Line"), on the one hand, and Eulaerts NV and the Belgian State, on the other, relating to the determination of the basis for charging VAT on second-hand cars in Belgium.

3Article 35(1) of the Belgian VAT Code of 3 July 1969 lays down the option of fixing a minimum basis of assessment for the taxation of motor vehicles. That article was implemented by Royal Decree No 17 of 20 July 1970, which had fixed the minimum basis for charging VAT on both new and second-hand cars. The decree was repealed by Royal Decree No 17 of 20 December 1984, and the minimum basis of assessment was retained only for second-hand cars.

4Article 1 of Royal Decree No 17 of 20 December 1984 lays down a minimum basis for charging VAT on second-hand cars supplied to, or imported by, users. Under Article 2(1) of the decree, the basis of assessment may not be lower than a specified percentage of the list price. The percentages are fixed according to the period of time which has elapsed between the date on which the vehicle was first used and the date on which it was supplied or imported.

5The case-file shows that in 1987 "K" Line, the plaintiff in the main proceedings, sold a used car to Eulaerts, the first defendant in the main proceedings. Both companies are taxable persons for VAT purposes.

6 "K" Line sent an invoice for the price of the car, namely the price agreed between seller and purchaser, and the VAT calculated on the basis of that price. The invoice was settled. In the course of an inspection, the tax authorities noted that under the relevant Belgian legislation VAT should have been calculated by reference to the minimum basis of assessment for second-hand cars (namely 55% of the list price), and claimed from "K" Line in addition the VAT payable on the difference between the price and the minimum basis of assessment. That amount was paid by "K" Line.

7 "K" Line thereupon claimed the amount of the additional VAT from Eulaerts who refused to pay it, however, on the ground that the introduction of a minimum basis of assessment was contrary to the provisions of the Sixth Directive. "K" Line therefore instituted proceedings against Eulaerts before the Rechtbank van Eerste Aanleg for reimbursement of the additional amount of VAT. Subsequently, the Belgian State was also joined to the proceedings with a view to securing reimbursement of that sum should the relevant legislation be found to be contrary to the Sixth Directive.

8Taking the view that the solution of the dispute depended on the interpretation of certain provisions of Community law, the Rechtbank van Eerste Aanleg decided to stay the proceedings pending a preliminary ruling by the Court on the following question:

"Are the provisions of Royal Decree No 17 of 20 July 1970, as amended by Royal Decree No 17 of 20 December 1984, enacted in implementation of Articles 35 and 52 of the VAT Code, contrary to Articles 11 and 27 of the Sixth VAT Directive and to the principle of the free movement of goods, as provided for in Articles 9, 10 and 11 of the EEC Treaty?"

9Reference is made to the report for the hearing for a fuller account of the facts of the case, the procedure and the written observations submitted to the Court, which are mentioned or discussed hereinafter only in so far as is necessary for the reasoning of the Court.

10It should be noted, as a preliminary matter, that in proceedings under Article 177 of the EEC Treaty the Court is not competent to make a ruling on the compatibility of national law with the Treaty. However, it is competent to provide the national court with all material relating to the interpretation of Community law which may enable it to determine the issue of compatibility for the decision in the case before it.

11The national court' s question should therefore be viewed as being in two separate parts, one pertaining to whether the provisions of the Sixth Directive are to be interpreted as precluding national legislation laying down, in respect of the sale of second-hand cars between taxable persons, a minimum basis of assessment for VAT which is different from that provided for by Article 11 of the directive, and the other pertaining to whether Articles 9 to 11 of the EEC Treaty prohibit national legislation of that kind.

12With regard to the second part of the question, that is to say the interpretation of provisions of the EEC Treaty relating to customs duties and to charges having equivalent effect, it suffices to note that the main proceedings only concern the determination of the basis of assessment for VAT payable on the sale in Belgium of a second-hand car, which has already been used in that country, by one taxable person to another, both of whom are established there. The present case, therefore, has no external aspect making it necessary to interpret Articles 9 to 11 of the EEC Treaty in order to resolve the dispute.

13The question which then remains to be considered is whether the provisions of the Sixth Directive are to be interpreted as precluding national legislation laying down a minimum basis of assessment which differs from that provided for by Article 11 of the directive, in respect of the sale of second-hand cars between taxable persons.

14In order to reply to that question, the first point to note is that, under Article 11A(1)(a) of the Sixth Directive, the taxable amount within the country is, in respect of supplies of goods, everything which constitutes the consideration which has been or is to be obtained by the supplier from the purchaser.

15However, Article 32 of the Sixth Directive makes specific provision for second-hand goods in the following terms:

"The Council, acting unanimously on a proposal from the Commission, shall adopt before 31 December 1977 a Community taxation system to be applied to used goods, works of art, antiques and collectors' items.

Until this Community system becomes applicable, Member States applying a special system to these items at the time this directive comes into force may retain that system."

16According to the proposals for a directive presented by the Commission to the Council on 11 January 1978 (OJ 1978 C 26, p. 2) and on 11 January 1989 (OJ 1989 C 76, p. 10), the aim of the special system of taxing used goods, whose adoption is provided for by the first paragraph of Article 32, is to ensure that goods on which VAT has been definitively charged are not taxed a second time upon their reintroduction into commercial channels, without the tax still included in their price being taken into consideration.

17In interpreting Article 32 of the directive, the Court held, in its judgment in Case C-165/88 ORO Amsterdam Beheer BV and Concerto BV v Inspecteur der Omzetbelasting [1989] ECR 4081, that until the Community legislature has taken action, it is necessary to continue to apply Article 32 of the Sixth Directive, which merely authorizes Member States that apply a special system of VAT to second-hand goods to retain that system.

18It is therefore necessary to consider whether Article 32 of the Sixth Directive may be relied upon in order to apply a basis of assessment different from that provided for by Article 11 of the directive, in respect of the sale of used cars between taxable persons.

19In examining that point, it should first be noted that the purpose of Article 32 of the Sixth Directive, in the context of the common system of VAT, is to provide for the adoption of a special system for the taxation of goods on which VAT has definitively been charged and which may, therefore, on their reintroduction into commercial channels, be taxed a second time without the tax still included in their price being taken into account. It follows that capital goods, even if used, on which a taxable person has been able to exercise his right to a deduction do not come within the scope of Article 32.

20Furthermore, where, as in the present case, a new car has not been supplied to a final consumer but to a taxable person who has used it as capital goods, that person has been able to deduct the VAT paid on the purchase of the car from the VAT payable in respect of his activity. When the taxable person resells the car, after using it, he does so after deducting the VAT paid at the previous stage. Accordingly, there can be no double taxation and the transaction cannot therefore be considered to come within the ambit of Article 32.

21It follows from all the foregoing considerations that Article 32 of the Sixth Directive is to be interpreted as not covering national legislation which, like that at issue in the main proceedings, provides, by way of derogation from Article 11 of the Sixth Directive, for a minimum basis of assessment applicable to supplies of used goods on which the right to a deduction had been exercised by taxable persons. Accordingly, such supplies must be taxed by reference to the basis of assessment laid down in Article 11 of the Sixth Directive.

22It remains to be ascertained, however, whether the minimum basis for charging VAT so established may be regarded as a derogation authorized under Article 27 of the Sixth Directive.

23In that connection, Article 27(1) of the Sixth Directive provides as follows:

"The Council, acting unanimously on a proposal from the Commission, may authorize any Member State to introduce special measures for derogation from the provisions of this directive, in order to simplify the procedure for charging the tax or to prevent certain types of tax evasion or avoidance. Measures intended to simplify the procedure for charging the tax, except to a negligible extent, may not affect the amount of tax due at the final consumption stage."

24Furthermore, as the Court pointed out in its judgment in Case 324/82 Commission v Belgium [1984] ECR 1861, national measures designed to prevent tax evasion or avoidance may not in principle derogate from the basis for charging VAT laid down in Article 11, except within the limits strictly necessary for achieving that aim. In the same judgment, the Court considered that the contested Belgian derogation, which set the minimum basis for charging VAT on the supply or import of new cars as the catalogue price of the car in question, did not fulfil the requirements laid down in Article 27 of the Sixth Directive. It took the view that the Belgian legislation at issue entailed such a complete and general amendment of the basis of assessment that it was impossible to accept that it contained only the derogations needed to avoid the risk of tax evasion or avoidance. Moreover, the measures at issue were disproportionate to the aim in view in so far as they departed in a general and systematic way from the rules laid down in Article 11 of the Sixth Directive.

25Measures of the kind at issue in the present case derogate from the general rules laid down in Article 11 of the Sixth Directive even more completely and generally than those on which the Court had occasion to adjudicate in its judgment in Commission v Belgium. In that case, the Belgian State was criticized for not taking into account, in determining the basis of assessment, the discounts or rebates allowed on prices. In the present case, it is the price itself as agreed between the parties which was not taken into account and was replaced by the minimum basis of assessment.

26It must therefore be concluded that a measure such as the minimum basis of assessment imposed by the Belgian legislature on the sale of second-hand cars between taxable persons does not constitute a derogation authorized under Article 27 of the Sixth Directive.

27In the light of the foregoing considerations, the answer to the question referred by the Rechtbank van Eerste Aanleg, Brussels, must be that the Sixth Directive is to be interpreted as precluding national legislation laying down, in respect of the sale of second-hand cars between taxable persons, a minimum basis of assessment for VAT which is different from that provided for by Article 11 of the directive.

Costs

Costs

28The costs incurred by the Commission of the European Communities, which has submitted observations to the Court, are not recoverable. Since these proceedings are, for the parties to the main proceedings, a step in the proceedings pending before the national court, the decision on costs is a matter for that court.

Operative part

On those grounds,

THE COURT (Sixth Chamber),

in answer to the question referred to it by the Rechtbank van Eerste Aanleg, Brussels, by order of 2 May 1991, hereby rules:

The Sixth Council Directive of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes ° Common system of value added tax: uniform basis of assessment ° is to be interpreted as precluding national legislation laying down, in respect of the sale of second-hand cars between taxable persons, a minimum basis of assessment for VAT which is different from that provided for by Article 11 of the directive.

OPINION OF ADVOCATE GENERAL

DARMON

delivered on 24 June 1992 ( *1 )

Mr President,

Members of the Court,

1In this preliminary question, the Rechtbank van Eerste Aanleg (Court of First Instance), Brussels, asks the Court to determine the VAT rules applicable to used goods sold by one taxable person to another taxable person.

2The facts are as follows. ‘K’ Line Air Service Europe BV (‘K’ Line), which is a taxable person for VAT purposes, sold a used Mercedes 280 SE motor vehicle to the Eulaerts NV (‘Eulaerts’), which is also a taxable person. ‘K’ Line drew up an invoice on 27 October 1988 and calculated VAT (25%) and luxury tax (8%) on the basis of the selling price, excluding tax, of BFR 260000. Eulaerts paid this initial invoice. On 21 February 1989, following a tax inspection, ‘K’ Line submitted a second invoice, calculating VAT and luxury tax using the ‘minimum basis of assessment’ of BFR 756554. The purchaser contested the new invoice. After contacting the relevant tax authorities, the seller made up a third invoice using the ‘minimum basis of assessment’ reduced to BFR 536250. The purchaser once again refused to pay the additional tax of BFR 91 163.

3After paying this sum, ‘K’ Line sought reimbursement, and to that end instituted proceedings principally against the purchaser, Eulaerts, and in the alternative against the Belgian State. The Rechtbank van Eerste Aanleg before which the case was brought, referred a question to the Court the substance of which relates to the compatibility of national provisions establishing the basis of assessment for VAT on used vehicles with Articles 11 and 27 of the Sixth Council Directive 77/388/EEC of 17 May 1997 ¹ and with Articles 9, 10 and 11 of the EEC Treaty.

4As is rightly pointed out by the Commission, it is not for the Court of Justice to rule, in proceedings for preliminary rulings, on the compatibility with Community law of provisions of national law. Its role is to provide the national court with guidance as to the interpretation of Community law so as to enable that court itself to assess the compatibility of the national provisions with Community law.

5To the end, in order to provide the national court with a worthwhile answer, the question should be expanded to include the scope of Article 32 of the Sixth Directive, which is concerned with secondhand goods.

I — Articles 9 to 12 of the EEC Treaty

6That having been said, Articles 9 to 11 of the EEC Treaty may be disregarded straightaway. The national court probably intended to refer to Article 12, which prohibits the introduction of new customs duties or charges having equivalent effect. The question is intended principally to enable it to determine whether the Belgian VAT scheme applicable to secondhand cars is compatible with the Community provisions in force. Articles 9 to 12 of the Treaty relate to customs duties and charges having equivalent effect and presuppose a foreign element which seems absent in this case since the sale took place in Belgium between two companies established there. More importantly, moreover, the Court has always regarded VAT as forming part of a general system of internal taxation whose compatibility with the Treaty must be considered in the context of Article 95 of the EEC Treaty and not of Articles 9 to 12. ²

‘Value added tax which a Member State levies on the importation of products from another Member State is part of the common system of value added tax the structure of which, and the essential terms governing its application, have been laid down by the Council in harmonizing directives which have established a uniform taxation procedure covering systematically and according to objective criteria both transactions carried out within the territory of a Member State and import transactions. Such a tax must therefore be considered as an integral part of a general system of internal taxation for the purposes of Article 95 of the Treaty and its compatibility with Community law must be considered in the context of that Article and not of that of Article 12 et seą of the Treaty’ ³

II — Articles 11, 27 and 32 of the Six Directive

7It is therefore by reference to the relevant provisions of the Sixth Directive that the national court will have to assess the compatibility of the Belgian legislation on value added tax namely Royal Decree No 17 of 20 July 1970, as amended by Royal Decree No 17 of 20 December 1984.

8Originally, Royal Decree No 17 of 20 July 1970, laying down rules on the taxation of new and secondhand cars, set as the minimum basis of assessment the list price for new cars and a percentage of the list price for secondhand cars.

9Following the Court's ruling on new cars ⁴ Belgium, by Decree No 17 of 20 December 1984, subjected only secondhand cars to a minimum basis of assessment based on a percentage of the list price. However, at the time when the legislation was amended the number and percentage of the rates was increased from seven rates ranging from 65 to 10% to ten rates ranging from 85 to 10%.

10The fundamental aim of the Sixth Directive is to guarantee the neutrality of turnover tax, in particular by harmonizing the basis of assessment.

11The concept of basis of assessment is of primary importance here; it underlies all the arguments as three successive bases have led to three different calculations of the amount of tax due.

12Article 11 of the Sixth Directive provides that:

‘The taxable amount shall be:

in respect of supplies of goods and services (...) everything which constitutes the consideration which has been or is to be obtained by the supplier from the purchaser (...)’ ⁵

That basis of assessment applies immediately to new goods. In respect of secondhand goods, Article 32 provides:

‘The Council, acting unanimously on a proposal from the Commission, shall adopt before 31 December 1977 a Community taxation system to be applied to used goods, works of art, antiques and collectors' items.

Until this Community system becomes applicable, Member States applying a special system to these items at the time this directive comes into force may retain that system.’

13Article 27 provides:

The Council acting unanimously on a proposal from the Commission, may authorize any Member State to introduce special measures for derogation from the provisions of this Directive, in order to simplify the procedure for charging the tax or to prevent certain types of tax evasion or avoidance. Measures intended to simplify the procedure for charging the tax, except to a negligible extent, may not affect the amount of tax due at the final consumption stage.

(...)

5Those Member States which apply on 1 January 1977 special measures of the type referred to in paragraph 1 above may retain them providing they notify the Commission of them before 1 January 1978 and providing that where such derogations are designed to simplify the procedure for charging tax they conform with the requirement laid down in paragraph 1 above.’

14Thus, the relevant provisions of the Sixth Directive comprise a rule, in Article 11, and two derogations, laid down respectively in Articles 27 and 32.

15The structure of those provisions is such that the first question to consider is whether the goods in question are secondhand or new. If the goods are held to be second-hand, the analysis need not be taken any further. If, on the other hand, the goods may not properly be regarded as secondhand, they are in principle governed by the rules laid down in Article 11 so that it is necessary to consider whether it is possible to envisage a derogation from that rule under Article 27.

1 — Article 32

16Article 32, which was not referred to by the national court, forms the main basis for discussion. There are two aspects to this. The first, upon which the whole discussion rests relates to the very concept of ‘secondhand goods’. The second, which is only relevant if the goods in question are to be considered secondhand within the meaning of the first paragraph of Article 32, concerns the scope of the derogation contained in the second paragraph of that article.

17On the first point, it should be remembered that in the proposal for a Sixth Directive, presented by the Commission to the Council on 29 June 1973, ⁶ Article 26 provided for a special scheme for secondhand goods clearly defined as ‘used movable property which can be reused as it is or after repair (...)’. That scheme principally governed the problem of the sale of secondhand goods by a nontaxable person, or by a taxable person who was not entided to make any deduction of VAT, to a taxable person intending to resell the goods. It was envisaged that the purchaser should be able to deduct the VAT calculated on the basis of the rate in force at the time when the goods were acquired. However, no provision was made in respect of the sale of secondhand goods by a taxable person to another taxable person.

18The Sixth Directive adopted by the Council on 17 May 1977 represents a retreat from the initial proposals put forward by the Commission. The definitive text does not settle the question of the taxation of secondhand goods which, moreover, are no longer defined. It refers to a later Council decision, the Member States being authorized, as has already been seen, to continue to apply any special scheme already in force. This is clearly the case with Belgium since it applied the Royal Decree of 20 July 1970, as amended by the Royal Decree of 20 December 1984, which governed in particular the taxation of secondhand goods.

19However, the urgent need to adopt a seventh directive on harmonization of the VAT legislation of the Member States relating to works of art, collectors' items, antiques and used goods soon became apparent to the Commission. ⁷ It presented two proposals for directives to the Council, one on 11 January 1978 ⁸ and one on 11 January 1989. ⁹ Their common aim was the elimination of double taxation. The second recital of the first proposal states ‘in the absence of special rules, a finished item reintroduced into the economic circuit would once again be fully subject to value added tax and the taxable person wishing to resell the item be unable to deduct the tax included in the item's purchase price’. ¹⁰ The definition of secondhand goods given in these proposals is substantially identical to that in the draft version of the Sixth Directive, and the case chiefly referred to remains the taxation of goods acquired, by a taxable person for resale from a nontaxable person or a taxable person who cannot exercise the right to a deduction.

20However, Article 32(4) of the proposal of 11 January 1989 provides that: ‘The special arrangement shall not apply to supplies of goods by a taxable dealer where he has acquired them from a taxable person who has invoiced the VAT in accordance -with Article 22(3)’. In that case, which corresponds, it would seem, to the situation concerned in these proceedings, the proposal (which has not yet been adopted) expressly states that the special arrangements concerning secondhand goods are not to apply. The question before the Court is precisely whether the sale of a used car by a taxable person to another taxable person comes within the ambit of Article 32 of the Sixth Directive.

21There have been several cases before the Court on secondhand goods. In relation to the application of VAT systems, there have often been cases concerned mainly with the importation of such goods.

22Thus, in the judgment Staatssecretaris van Financien v Schul ¹¹ the Court stated:

‘Where a Member States charges VAT on the importation (...) of goods supplied by a private person (...) the VAT payable on importation must be calculated by taking into account the amount of VAT paid in the Member State of exportation that is still contained in the value of the goods at the time of importation in such a way that that amount is not included in the taxable amount and is in addition deducted from the VAT payable on importation.’

The Court's main concern was to ensure that Article 95 of the Treaty was adhered to and to avoid double taxation of the imported secondhand goods.

23Likewise, in the case of Rainer Drexl, ¹² concerning the importation of a secondhand vehicle from a Member State applying a different rate of VAT from the one in force in the exporting country, the Court, basing its reasoning on Article 95 of the EEC Treaty, stated that:

‘(...) in the case of the importation from another Member State by a private individual of goods in respect of which there has not been granted either tax relief on exportation or tax exemption in the importing Member State, the value added tax charged on importation must take into account the residual amount of value added tax paid in the Member State of exportation which is still contained in the value of the goods at the time of importation, in such a way that that residual amount is not included in the taxable amount and is deducted from the value added tax payable on importation’. ¹³

24Those two cases, although concerning the application of VAT rules to secondhand goods, differed from the present situation inasmuch as they involved the importation of goods and concerned a final consumer who was not a taxable person and who had paid VAT without being able to deduct it. However, they help to identify an initial factor which assists in the fiscal definition of secondhand goods. Secondhand goods are goods which, unlike new goods, still contain a residual part of VAT.

25There is, however, a case which, without being on all fours with the present case, resembles it greatly, namely ORO Amsterdam Beheer and Concerto v Inspecteur der Omzetbelasting. ¹⁴ The preliminary question raised by the Amsterdam Gerechtshof related directly not to Article 95 of the Treaty but to Article 32 of the Sixth Directive. The Court stressed the incomplete nature of the harmonization of the Community VAT system and stated that

‘That objective has not yet been achieved, however, as is clear from Article 32 of the Sixth Directive, arid nowhere in the common system of value added tax, as it stands at present, are to be found the necessary bases for determining and laying down detailed rules for applying a common system of taxation enabling double taxation to be avoided in trade in secondhand goods.’ ¹⁵

26The case before the Court related to a sale by a nontaxable person to a taxable person. Furthermore, it is important to note that, in cases on taxation of secondhand goods, goods retaining a residual part of VAT frequently feature. Clearly, the Community VAT system applying to secondhand goods was constructed almost exclusively on that relationship of nontaxable person to taxable person. The Court stated in the above case that:

‘The harmonization is designed in particular to preclude double taxation, so that the deduction of input tax at each stage of taxation is an integral part of the system of VAT.’ ¹⁶

27As I have pointed out, the Court has never considered the case of a supply of secondhand goods between two taxable persons. Having outlined the general framework of the dispute and explained the manner in which the Court has defined the scope of Article 32 of the Sixth Directive, I must now consider whether the transaction in question falls under that article or whether Article 11 of the Sixth Directive applies. In other words, under the Sixth Directive are goods -which are used but are free of all tax secondhand goods within the meaning of Article 32 or are they new goods?

28In cases on trade in secondhand goods, the Court's principal concern has been that competition between sales by professional dealers (taxable persons) and by private persons should not be distorted. In this context, in Commission v Netherlands ¹⁷ and in Commission v Irefønd, ¹⁸ the Court held:

‘Secondhand goods which are reintroduced into commercial circulation are therefore taxed once again, whereas secondhand goods which pass directly from one consumer to another remain burdened solely by the tax imposed on the occasion of the first sale to a nontaxable consumer. Especially where the rate of VAT is high, that difference in treatment distorts competition between direct sales from one consumer to another and transactions passing through ordinary commercial channels, and thus places at a disadvantage branches of trade in which a large number of transactions involve secondhand goods, such as the motorcar trade in particular.’ ¹⁹

29That same concern led the Commission, in its second proposal for a Seventh Directive, to suggest that for secondhand goods the method of calculation be as follows:

‘The taxable amount shall be the difference, for each transaction, between the selling price and the purchase price. The selling price shall be the price charged by the taxable dealer without value added tax. The purchase price shall be the tax-inclusive price paid by the taxable dealers.’ ²⁰

Thus, the taxable basis as defined above would enable actual value added at the time of the transaction to be calculated.

30However, that method of calculation, if it were in force, would be completely inapplicable in the present case as the vehicle was free of all tax at the time when it was supplied. It would be impossible to calculate the difference between a tax-free sale price of BFR 260000 and a purchase price which cannot be considered to include tax, the tax having been deducted previously.

31In the light of the foregoing, there is no doubt that the concerns expressed both by the Court and by the Commission in its proposals for directives concerning the basis of assessment for VAT on secondhand goods are different from the case before the national court and that it is necessary to go beyond the general answers given by the Commission on this subject. ²¹

32Furthermore, the physical state of the goods should not affect the Court's reasoning. Certainly, the vehicle is used. However, the Court has had to consider the concept of ‘new’ goods and of ‘used’ goods on several occasions. In Schloh v Auto Contrôle Technique, ²² Advocate General Mancini took the view that ‘the definition of “new” and “used” is not the same as the dictionary definition (...)’. Likewise, Advocate General Rozès stated in Schul v Inspecteur der Invoerrechten en Accijnzen above:

‘Even the definition of secondhand goods is not simple. In a general way it may be said that secondhand goods are goods which may, if necessary after being reconditioned, be reused in the place of new goods serving the same purpose. (...) All such goods have the characteristic that once they have reached the ultimate consumer at the end of a series of trade transactions they may, after some use, be reintroduced into trade or use. No matter to what category they belong they may have, moreover, the characteristic, in contrast to new goods, of being able to be transferred without the intervention of a trade.’ ²³

That definition takes into account perfectly the fiscal situation of the secondhand goods when they reach the final consumer. The concept of consumption is undoubtedly more relevant to the definition of secondhand goods than the used condition of the goods, VAT being a tax intended to be imposed definitively on goods, after a cycle of taxation and deductions, when they reach the stage of final consumption, that is to say, the stage at which they pass to a nontaxable person. ²⁴ The Commission's representative rightly stated, in his oral observations, for the purposes of Article 32 secondhand goods are ones in respect of which the VAT chain of seller and purchaser has been interrupted by the intervention of a final consumer.

33Consequently, and in the light of the previous observations, reasoning based on the internal coherence of the VAT system and on the aims which the Court and the Commission assigned to the VAT scheme applicable to secondhand goods, namely avoiding double taxation and allowing free competition between sales between two nontaxable persons and those following the traditional commercial pattern, leads me to the following consideration.

34Where supply of goods is effected for consideration within the territory of a country by a taxable person to another taxable person, both acting as such, ²⁵ that is to say independently and habitually carrying out the activities of producers, traders and persons supplying services, ²⁶ it clearly falls within the scope of the general scheme of the Sixth Directive and the taxable basis is therefore that of Article IIA of the Directive. That the goods have been physically used is a matter of fact and does not preclude the application of the fiscal regime defined therein.

35Moreover, a study of the general scheme of the system of deductions, ‘the cornerstone of the common system’, ²⁷ as provided for in the Sixth Directive ²⁸ suggests that the proposals for a Seventh Directive were made with the sole aim of recreating fictionally a right of deduction for traders in secondhand goods, whose activity is based on the purchase of goods from nontaxable persons and who are therefore never able to make a deduction of VAT. The desired aim is to incorporate trade in secondhand goods into the normal VAT chain. ²⁹

36As to the second point referred to earlier, on Article 32(2), if the goods which are the subject-matter of the litigation had been considered secondhand, the question would have arisen as to whether the amendment of 20 December 1984 to Royal Decree No 17 of 20 July 1970 should be regarded merely as a technical amendment without any bearing on the right to retain the previous rules or whether the increase in the number and levels of rates should be interpreted as creating a new scheme, postdating the entry into force of the Sixth Directive.

37However, as the supply of used goods by a taxable person to another taxable person does not, to my mind, come within the ambit of Article 32 of the Sixth Directive, any discussion of this is unnecessary.

38It remains for me to examine whether such a transaction may come under the derogation to Article 11 provided for by Article 27.

2 — Article 27 of the Sixth Directive

39The Commission considers that the Kingdom of Belgium cannot rely on Article 27. In this context, it cites the judgment of the Court in Commission v Belgium. ³⁰

40The Commission instigated proceedings against the Kingdom of Belgium under Article 169 of the EEC Treaty in order to obtain a declaration that the special rules governing the basis for charging VAT on new cars and on so-called ‘voitures de direction’, as set out in particular in Royal Decree No 1 of 20 July 1970, was in breach of Article 11 of the Sixth Directive.

41After stating that it was ‘common ground that the Belgian rules’ ³¹ were at variance with this provision, the Court considered whether those rules could ‘derogate from Article 11 (...) of the Directive as “special measures” within the meaning of paragraphs (1) and (5) of Article 27’. ³² The Court held that

‘However, by applying to all new cars the catalogue prices notified to the Belgian authorities, the Belgian legislation entails such a complete and general amendment of the basis of assessment that it is impossible to accept that it contains only the derogations needed to avoid the risk of tax evasion or avoidance. In particular, it has not been proved that, in order to attain the aim in view, it is necessary that the taxable amount should be fixed on the basis of the Belgian catalogue price or that the taking into account of any form of price discount or rebate should be excluded in such a comprehensive manner.’ ³³

‘It follows that the measures at issue are disproportionate to the aim in view in so far as they depart in a general and systematic way from the rules laid down in Article 11 by covering sales and imports of all new cars, either leaving the factory or already used for a period of less than six months’. ³⁴

In conclusion the Court held that

‘it must be decided that, by retaining the catalogue price as the minimum basis to charging VAT on new cars, either supplied within the country or imported, as a special measure derogating from Article 11 of the Sixth Directive, when the requirements laid down in Article 27(5) of the directive are not fulfilled, the Kingdom of Belgium has failed to fulfil its obligations under the EEC Treaty’. ³⁵

42It appears to me as it does to Eulaerts, that the interpretation of Article 27, given here in the context of the Court's ruling on new cars, ³⁶ applies a fortiori to used cars. The intrinsic value of used cars varies according not only to reductions and rebates but also, and no doubt even more so, according to their condition (number of kilometres on the clock, quality or lack of maintenance, etc).

43Thus, Article 27 of the Sixth Directive should be interpreted as meaning that, in general, the derogation which it allows cannot be relied upon to support the compatibility of national legislation with Community law where the provisions are disproportionate in the light of the ratio legis of the derogation, that is ‘to simplify the collection of the tax or (...) to avoid fraud or tax evasion’, it being noted that ‘the measures intended to simplify the collection of the tax cannot influence, other than to a negligible extent, the amount of tax due at the final consumption stage’. ³⁷

3 — Article 11 of the Sixth Directive

44It follows that Article 11 of the Sixth Directive must be interpreted as governing the supply of goods, used or otherwise, from a taxable person to another taxable person.

45In conclusion, my opinion is that the Court should rule as follows:

Value added tax should be considered an integral part of a general system of internal taxation within the meaning of Article 95 of the EEC Treaty. It follows that the compatibility with Community law of national VAT rules must be assessed in the light of that article and not of Articles 9 et seq. of the Treaty.

Article 32 of the Sixth Council Directive (77/388/EEC) of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment — must be interpreted as meaning that it does not apply to supply of goods, even used goods, by a taxable person to another taxable person.

Article 27 of that same directive must be interpreted as meaning that the derogation which it contains does not render compatible with Community law national rules whose provisions are disproportionate in relation to the ratio legis of the derogation.

Article 11 of the Sixth Directive is at variance with rules which, in the case of the supply of a used vehicle by a taxable person to another taxable person, apply a rate of VAT calculated using a flat-rate basis of assessment based on a percentage of the list price.

( *1 ) Original language: French.

¹ Directive on the harmonization of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment (OJ 1977 L 145, p. 1).

² For example, judgment in Case 15/81 Schul v Inspecteur der Invoerrechten en Accijnzen (‘Schul I’) [1982] ECR 1409, at paragraph 21.

³ Judgment in Case 249/84 Ministère Public v Profant [1985] ECR 3237 at paragraph 15.

⁴ Judgment in Case 324/82 Commission v Belgium [1984] ECR 1861.

⁵ My emphasis.

⁶ OJ 1973 C 80, p. 1.

⁷ First Report from the Commission to the Council on the application of the common system of value added tax, COM(83)426 final, pp. 68-70.

⁸ OJ 1978 C 26, p. 2.

⁹ OJ 1989 C 76, p. 10.

¹⁰ OJ 1978 C 26, p. 2.

¹¹ Case 47/84 Staatssecretaris van Financien v Schul (‘Schul II’) [1985] ECR 1491.

¹² Case 299/86 Drexl [1988] ECR 1213.

¹³ Paragraph 13.

¹⁴ Case 165/88 ORO Amsterdam Beheer and Concerto v inspecteur der Omzetbelasting [1989] ECR 4081.

¹⁵ Paragraph 23.

¹⁶ Paragraph 22.

¹⁷ Case 16/84 Commission v Netherlands [1985] ECR 2355.

¹⁸ Case 17/84 Commission v Ireland [1985] ECR 2375.

¹⁹ Paragraphs 18 and 14, respectively.

²⁰ Article 32B(1), first paragraph.

²¹ Written question No 2096/84 (OJ 1985 C 193, p. 19), see also written question No 489/88 (OJ 1989 C 63, p. 18).

²² Case 50/85 Schloh v Auto Controle Technique [1986] ECR 1855.

²³ Case 15/81 Schul v Inspecteur der Invoerrechten en acájnzen [1981] ECR 1409, pp. 1442-1443.

²⁴ Claeys Bouuaert Ignace, Les notions de base de la TVA dans quelques arrêts récents de la Cour de justice européenne, Journal de droit fiscal, 1989, p. 275.

²⁵ Article 2 of the Sixth Directive.

²⁶ Article 4 of the Sixth Directive.

²⁷ Opinion of Advocate General Simone Rozès in Schul v Inspecteur der Invoerrechten, above.

²⁸ Articles 17 et seq. of the Sixth Directive.

²⁹ See Dominique Berlin, ‘Harmonisation des fiscalités’, Jurisclasseur Europe, fascicule 1630, p. 20.

³⁰ Case 324/82 Commission v Belgium [1984] ECR 1861.

³¹ Ibid, point 19.

³² Ibid, point 20.

³³ Ibid, point 31.

³⁴ Ibid, point 32.

³⁵ Ibid, point 34.

³⁶ And on ‘voitures de direction’.

³⁷ My emphasis.