C-160/11 Bawaria Motors

JUDGMENT OF THE COURT (Third Chamber)

19 July 2012 ( *1 )

‛Directive 2006/112/EC — VAT — Article 136 — Exemptions — Articles 313 to 315 — Special margin scheme — Supply of second-hand vehicles by a taxable dealer — Vehicles previously supplied exempt from VAT to a taxable dealer by another taxable person which had a right of partial deduction of input tax’

In Case C-160/11,

REFERENCE for a preliminary ruling under Article 267 TFEU from the Naczelny Sąd Administracyjny (Poland), made by decision of 25 February 2011, received at the Court on 1 April 2011, in the proceedings

Bawaria Motors sp. z o.o.

v

Minister Finansów,

THE COURT (Third Chamber),

composed of K. Lenaerts (Rapporteur), President of the Chamber, R. Silva de Lapuerta, G. Arestis, T. von Danwitz and D. Šváby, Judges,

Advocate General: J. Mazák,

Registrar: A. Impellizzeri, Administrator,

having regard to the written procedure and further to the hearing on 16 February 2012,

after considering the observations submitted on behalf of:

Bawaria Motors sp. z o.o., by D. Baczewska-Golińska, adwokat, and M. Zając, tax adviser,

the Minister Finansów, by T. Tratkiewicz and J. Kaute, acting as Agents,

the Polish Government, by M. Szpunar and by A. Gawlowska and A. Kraińska, acting as Agents,

the European Commission, by L. Lozano Palacios and K. Herrmann, acting as Agents,

after hearing the Opinion of the Advocate General at the sitting on 24 May 2012,

gives the following

Judgment

Legal context and the dispute

1This reference for a preliminary ruling concerns the interpretation of Articles 313(1) and 314 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ 2006 L 347, p 1), read in conjunction with Articles 136 and 315 of that directive.

2The reference has been made in proceedings between Bawaria Motors sp. z o.o. (‘Bawaria Motors’) and the Minister Finansów (Minister for Finance) regarding the applicability of the margin scheme to certain activities of that company consisting in the reselling of second-hand vehicles.

Legal context

European Union law

3Pursuant to Article 1(2) of Directive 2006/112:

‘The principle of the common system of [value added tax (“VAT”)] involves the application to goods and services of a general tax on consumption exactly proportional to the price of the goods and services, whatever the number of transactions which take place in the production and distribution process before the stage at which tax is charged.

On each transaction, VAT, calculated on the price of the goods or services at the rate applicable to such goods or services, shall be chargeable after deduction of the amount of VAT borne directly by the various cost components.

…’

4Title IX of Directive 2006/112, entitled ‘Exemptions’, contains a Chapter 3, entitled ‘Exemptions for other activities’. Article 136 of that title, included under that chapter, provides:

‘Member States shall exempt the following transactions:

the supply of goods used solely for an activity exempted under Articles 132, 135, 371, 375, 376 and 377, Article 378(2), Article 379(2) and Articles 380 to 390, if those goods have not given rise to deductibility;

the supply of goods on the acquisition or application of which VAT was not deductible, pursuant to Article 176.’

5Title X of Directive 2006/112, entitled ‘Deductions’, contains a Chapter 3, entitled ‘Restrictions on the right of deduction’. Article 176 of that title, which is included under that chapter, provides:

‘The Council, acting unanimously on a proposal from the Commission, shall determine the expenditure in respect of which VAT shall not be deductible. VAT shall in no circumstances be deductible in respect of expenditure which is not strictly business expenditure, such as that on luxuries, amusements or entertainment.

Pending the entry into force of the provisions referred to in the first paragraph, Member States may retain all the exclusions provided for under their national laws at 1 January 1979 or, in the case of the Member States which acceded to the Community after that date, on the date of their accession.’

6Title XII of Directive 2006/112, entitled ‘Special arrangements’, includes a Chapter 4, entitled ‘Special arrangements for second-hand goods, works of art, collectors’ items and antiques’, consisting of Articles 311 to 343.

7Under Article 311(1)(1) and 311(1)(5) of Directive 2006/112:

‘For the purposes of this Chapter, and without prejudice to other Community provisions, the following definitions shall apply:

“second-hand goods” means movable tangible property that is suitable for further use as it is or after repair, other than works of art, collectors’ items or antiques and other than precious metals or precious stones as defined by the Member States;

…

“taxable dealer” means any taxable person who, in the course of his economic activity and with a view to resale, purchases, or applies for the purposes of his business, or imports, second-hand goods, works of art, collectors’ items or antiques, whether that taxable person is acting for himself or on behalf of another person pursuant to a contract under which commission is payable on purchase or sale.’

8Article 313(1) of Directive 2006/112 states:

‘In respect of the supply of second-hand goods, works of art, collectors’ items or antiques carried out by taxable dealers, Member States shall apply a special scheme for taxing the profit margin made by the taxable dealer, in accordance with the provisions of this Subsection.’

9Article 314 of Directive 2006/112 provides:

‘The margin scheme shall apply to the supply by a taxable dealer of second-hand goods, works of art, collectors’ items or antiques where those goods have been supplied to him within the Community by one of the following persons:

a non-taxable person;

another taxable person, in so far as the supply of goods by that other taxable person is exempt pursuant to Article 136;

another taxable person, in so far as the supply of goods by that other taxable person is covered by the exemption for small enterprises provided for in Articles 282 to 292 and involves capital goods;

another taxable dealer, in so far as VAT has been applied to the supply of goods by that other taxable dealer in accordance with this margin scheme.’

10Article 315 of Directive 2006/112 provides:

‘The taxable amount in respect of the supply of goods as referred to in Article 314 shall be the profit margin made by the taxable dealer, less the amount of VAT relating to the profit margin.’

The profit margin of the taxable dealer shall be equal to the difference between the selling price charged by the taxable dealer for the goods and the purchase price.’

National law

11The Law on tax on goods and services (Ustawa o podatku od towarów i usług) of 11 March 2004 (Dz. U. No 54, position 535), as applicable to the facts at issue in the main proceedings (‘the Law on VAT’) states, in Article 15(1) thereof:

‘“Taxable persons” are legal persons, organisational units without legal personality and natural persons pursuing an independent economic activity, as referred to in paragraph 2, regardless of the purpose or result of such activity.’

12Under Article 43(1)(2) of the Law on VAT, the supply of second-hand goods is exempt from tax, provided that the person effecting the supply did not have a right of deduction with regard to those goods.

13Second-hand goods, within the meaning of that provision, are defined in Article 43(2) as ‘movable tangible property whose period of use by the economic operator effecting the supply thereof amounted to at least six months following acquisition of the right to dispose of those goods as owner’.

14Under Article 86(3) of the Law on VAT:

‘In the case of the purchase of passenger vehicles and other motor vehicles with a total authorised weight not exceeding 3.5 tonnes, the amount of input tax shall correspond to 60% of the amount of tax set out in the invoice or of the amount of tax due on the intra-Community acquisition of goods or of the amount of tax due on the supply of goods purchased by the taxable person, but not more than PLN 6 000.’

15Article 113(1) of the Law on VAT provides:

‘Taxable persons shall be exempt from tax if their total taxed sales in the preceding tax year did not exceed PLN 50 000. The value of the sales shall not include the amount of tax.’

16Article 120 of the Law on VAT, concerning the margin scheme, contains the following provisions:

‘1. …

For the purposes of this Chapter “second-hand goods” shall mean tangible movable property that is suitable for further use as it is or after repair, other than [works of art, collectors’ items and antiques] and goods other than precious metals or precious stones ...

…

4. In the case of a taxable person effecting transactions consisting in the supply of second-hand goods, works of art, collectors’ items or antiques acquired previously by that taxable person for the purposes of the activity carried out or imported for the purpose of resale, the taxable amount shall be the margin constituting the difference between the total amount which the purchaser of the goods is to pay and the amount of the acquisition, minus the amount of tax.

…

10. Paragraphs 4 and 5 shall concern supplies of second-hand goods, works of art, collectors’ items or antiques which the taxable person has acquired from:

a natural person, a legal person or an organisational unit without legal personality which is not a taxable person for the purposes of Article 15 or which is not a taxable person for the purposes of [VAT];

taxable persons as referred to in Article 15, where the supply of those goods was exempt from tax under Article 43(1)(2) or Article 113;

taxable persons, where the supply of those goods was taxed under paragraphs 4 and 5;

taxable persons for the purposes of [VAT], where the supply of those goods was exempt from tax under Article 43(1)(2) or Article 113;

taxable persons for the purposes of VAT, where VAT is imposed on the supply of those goods under rules provided for in paragraphs 4 and 5 and the acquirer holds documents confirming unequivocally that the goods were acquired under those rules.’

17Paragraph 13(1)(5) of the Decree of the Minister for Finance implementing certain provisions of the Law on tax on goods and services (rozporządzenie Ministra Finansów r.w sprawie wykonania niektórych przepisów ustawy o podatku od towarów i usług, Dz. U. No 212, position 1336), of 28 November 2008 (‘the Decree on VAT’), provides:

‘The supply of passenger vehicles and other motor vehicles by taxable persons who, on acquisition thereof, had the right to deduct input tax referred to in Article 86(3) of the law shall be exempt from tax where those passenger vehicles or motor vehicles are second-hand goods within the meaning of Article 43(2) of the Law on VAT.’

Background to the dispute and the question referred for a preliminary ruling

18Bawaria Motors is a taxable person for VAT purposes, within the meaning of Article 15 of the Law on VAT. It carries out an economic activity consisting in the operation of car showrooms, in the course of which it acquires and then subsequently sells passenger vehicles, both new and second-hand. As part of its activities, it purchases second-hand vehicles from economic operators which, not having been able to deduct the VAT paid on the purchase of those vehicles, issue Bawaria, at the time of the supply, with invoices marked ‘exempt’, so far as concerns the rate of VAT applicable, and referring to Article 43(1)(2) of the Law on VAT. On the resale of those second-hand vehicles, Bawaria makes use of the margin scheme set out in Article 120 of the Law on VAT.

19Situations also arise in which Bawaria Motors purchases second-hand vehicles from economic operators who, on acquisition, have deducted VAT within the limits set in Article 86(3) of the Law on VAT. In such situations, the operator issues Bawaria Motors with an invoice marked ‘exempt’, so far as concerns the rate of VAT payable on the supply, and referring to Paragraph 13(1)(5) of the Decree on VAT.

20Taking the view that it was entitled, in the cases referred to in the preceding paragraph of this judgment, to apply the margin scheme provided for in Article 120 of the Law on VAT, on 9 February 2009 Bawaria Motors sent the Minister Finansów a request for an individual interpretation.

21The Minister Finansów responded to that request on 20 February 2009. He took the view that, having regard to the wording of Article 120(10) of the Law on VAT, Bawaria Motor’s position was not justified. He submitted that Paragraph 13 of the Decree on VAT does not constitute an extension of the situations covered by Article 43 of the Law on VAT, to which Article 120(10) refers. In his opinion that law otherwise complies with Articles 312 to 325 of Directive 2006/112, which allow the application of the margin scheme only in cases where the taxable dealer has acquired the second-hand good from an economic operator which did not have the right to deduct input VAT and therefore incorporated it in the supply price charged to that taxable dealer.

22Bawaria Motors brought an action against that interpretation before the Wojewódzki Sąd Administracyjny w Warszawie (Regional Administrative Court, Warsaw), claiming that the Minister Finansów’s position was derived from a literal interpretation of Article 120 of the VAT Law, incompatible with the fundamental principles of VAT, that is to say fiscal neutrality, the effective taxation of only one particular marketing stage and the principle of maintaining competitive conditions.

23By a judgment of 10 November 2009, the Wojewódzki Sąd Administracyjny w Warsawie annulled the contested interpretation. It held that Paragraph 13(1)(5) of the Decree on VAT, which introduces a tax exemption not provided for under EU law, does not exempt the economic operator which supplies a second-hand vehicle to a taxable dealer from the obligation to tax that supply where, on acquisition of that vehicle, that economic operator was not entitled to deduct the input VAT in full. According to that court, the exemption set out in that provision of the Decree on VAT concerns only the part of the VAT remaining payable by the economic operator, having regard to the limits provided for in Article 86(3) of the Law on VAT, excluding the amount, corresponding to 60% of the tax indicated on the invoice or to PLN 6 000, as the case may be, which that economic operator deducted on the purchase of the vehicle. It follows, according to that court, that Bawaria Motors is entitled to apply the margin scheme, but only in respect of an amount limited to the input tax which the economic operator which supplied it with the vehicle was unable to deduct, corresponding to 40% of the amount of the tax indicated on the invoice or to the part of that tax in excess of PLN 6 000, as the case may be.

24Bawaria Motors lodged an appeal in cassation against that judgment before the Naczelny Sąd Administracyjny, submitting, essentially, that the fact that it was impossible for it to apply the margin scheme in full to the resale of second-hand goods acquired in the context of an exempt supply under Paragraph 13(1)(5) of the Decree on VAT infringed, inter alia, Article 120(4) and (10) of the Law on VAT and the abovementioned provision of the Decree on VAT.

25The Minister Finansów also lodged an appeal in cassation, in which he maintained his original position that, in the circumstances of the present case, the taxable dealer is not eligible to apply, even in part, the margin scheme.

26Accordingly, the Naczelny Sąd Administracyjny decided to stay proceedings and to refer the following question to the Court for a preliminary ruling:

‘Are the provisions of Articles 313(1) and 314 of [Directive 2006/112], read in conjunction with Articles 136 and 315 thereof, to be interpreted as permitting the application of the special “margin” scheme for taxable dealers in relation to supplies of second-hand goods also where they resell the purchased passenger vehicles and other motor vehicles to which the tax exemption for the supply of passenger vehicles and other vehicles by taxable persons who only have a partial right to deduct input tax on the purchase thereof, as laid down in Article 86(3) of the [Law on VAT], was applied pursuant to the Polish national provisions laid down in Paragraph 13(1)(5) of the [Decree on VAT], where those passenger vehicles and motor vehicles were second-hand goods within the meaning of Article 43(2) of the Law on VAT and Article 311(1)(1) of [Directive 2006/112]?’

On the question referred

27By its question, the referring court asks, essentially, whether Articles 313(1) and 314 of Directive 2006/112, read in conjunction with Articles 136 and 315 of that directive, must be interpreted as meaning that a taxable dealer is eligible for the application of the margin scheme where it supplies motor vehicles considered to be second-hand goods, within the meaning of Article 311(1)(1) of that directive, which it has previously acquired exempt from VAT from another taxable person which had only a right to partial deduction of input VAT paid on the purchase price of those vehicles.

28In this connection it should be noted that the scheme for the taxation of the profit margin made by the taxable dealer on the supply of second-hand goods such as those at issue in the main proceedings constitutes a special arrangement for VAT — derogating from the general scheme of Directive 2006/112 (see Case C-280/04 Jyske Finans [2005] ECR I-10683, paragraph 35, and Case C-203/10 Auto Nikolovi [2011] ECR I-1083, paragraph 46).

29Consequently, Article 314 of Directive 2006/112, which identifies the cases in which this special arrangement is to be applied, must be construed narrowly. It follows that those cases are exhaustively listed, as the Advocate General pointed out in point 29 of his Opinion.

30It is apparent from the file submitted to the Court that the facts at issue in the main proceedings do not fall within any of the cases referred to in Article 314(a), (c) and (d). According to the information in that file, the supplies of second-hand vehicles to Bawaria Motors at issue in the main proceedings were carried out by persons who were themselves taxable persons for VAT purposes and who were neither covered by the exemption for small enterprises set out in Articles 282 to 292 of Directive 2006/112, nor subject to the margin scheme.

31Since those supplies were exempt from VAT under Paragraph 13(1)(5) of the Decree on VAT, it is necessary, in those circumstances, to examine whether they may fall within the case specifically referred to in Article 314(b) of Directive 2006/112, that is, where the supply of goods to the taxable dealer by another taxable person is exempt pursuant to Article 136 of that directive.

32First, the application of Article 136(a) of that directive must be ruled out in the case in the main proceedings. As the Advocate General observed in point 37 of his Opinion, it is apparent from the file that the supplies of vehicles to Bawaria Motors, at issue in the main proceedings, bear no relation to any of the exempt activities pursuant to the provisions listed in Article 136(a).

33As regards, secondly, the application of Article 136(b) of Directive 2006/112 to that case, it must be pointed out that that provision provides for the exemption of supplies of goods on the acquisition or application of which VAT was not deductible, pursuant to Article 176 of that directive. Article 176, in the second paragraph thereof, contains a ‘standstill’ clause which authorises the Member States to retain, pending the entry into force of the Council provisions, referred to in the first paragraph of that article and determining the expenditure in respect of which VAT is not deductible, all the exclusions provided for under their national laws at 1 January 1979 or, in the case of the Member States which acceded to the Community after that date, such as the Republic of Poland, at the date of their accession.

34Article 136(b) must be construed narrowly. The exemption which it introduces constitutes an exception to the general principle that VAT is to be levied on all goods supplied for consideration by a taxable person (see, to that effect, Jyske Finans, paragraph 21). Moreover, that exemption falls, by virtue of the reference made to Article 136 in Article 314(b) of that directive, within the scope of the derogating margin scheme.

35The exemption provided for by Article 136(b) of Directive 2006/112 therefore can apply only to supplies of goods on the acquisition of which value added tax did not become deductible in accordance with national legislation (see, to that effect, Jyske Finans, paragraph 24).

36That construction is borne out by the wording of Article 176 of Directive 2006/112 which mentions, in the first paragraph thereof, expenditure ‘in respect of which VAT shall not be deductible’ and, in the second paragraph thereof, ‘exclusions’ provided for under the existing national laws, this article being referred to in Article 136(b) of that directive.

37Otherwise, it reflects the general scheme of Article 314 of Directive 2006/112. As the Polish Government, the Commission and the Advocate General, in point 30 of his Opinion, have pointed out, the situations in which the margin scheme is applied, the list of which includes the exemption provided for in Article 136(b) of that directive, have in common that the person supplying the goods concerned to the taxable dealer could not deduct any of the input tax paid on the purchase of those goods and therefore bore that tax in its entirety.

38In the case in the main proceedings, Article 86(3) of the Law on VAT provides not that VAT is not deductible, within the meaning of Article 136(b) of Directive 2006/112, but that the amount of the tax deductible is limited. Far from being wholly deprived of the right to deduct the input VAT paid, the taxable person having acquired the goods subsequently supplied to the taxable dealer is entitled to deduct that tax within the limits set by that national provision, that is, 60% of the input tax paid or PLN 6 000, as the case may be.

39Consequently, and without there being a need to assess whether Article 86(3) of the Law on VAT is covered by the ‘standstill’ clause in the second paragraph of Article 176 of Directive 2006/112, the exemption from VAT granted by Paragraph 13(1)(5) of the Decree on VAT on supplies of motor vehicles to a taxable dealer carried out by taxable persons which had the right to deduct in part the input tax paid, under Article 86(3) of the Law on VAT, does not correspond, on any view, to the situation narrowly defined in Article 136(b) of that directive. It follows that the subsequent supply of those vehicles by the taxable dealer is not eligible for the application of the margin scheme.

40Bawaria Motors submits that such an interpretation, upheld by the Minister Finansów, results in it being subjected to partial double taxation. It explains that, in accordance with that interpretation, it is required under the normal VAT arrangements to apply VAT on the entire resale price of the second-hand motor vehicle at issue, although, as that vehicle was previously supplied to it exempt from VAT by another taxable person under Paragraph 13(1)(5) of the Decree on VAT, it cannot deduct the part of the VAT which that other taxable person was unable, pursuant to the restriction set out in Article 86(3) of the Law on VAT, to deduct as input tax and which has therefore been incorporated into the price of that supply.

41However, in the light of the considerations set out in paragraphs 34 and 35 above, Article 136(b) of Directive 2006/112 is not capable of any interpretation other than that contained in paragraph 39 above, which would allow a taxable dealer which, like Bawaria Motors, cannot rely on the fact that on the initial acquisition, by another taxable person, of the goods which were subsequently supplied to it as second-hand goods VAT was not deductible within the meaning of that provision, to avoid partial double taxation (see, to that effect, Jyske Finans, paragraph 24). That situation has no effect on the determination of the conditions under which the margin scheme provided for in Article 314 of that directive is applied.

42As the Commission submitted, both in its written pleadings and at the hearing, it falls to the Polish legislature to end such a situation. However, the elimination of that situation should not be at the cost of an interpretation of Directive 2006/112 which is irreconcilable with the actual wording of that directive and its general scheme.

43It must also be stated that, in contrast to the position defended by Bawaria Motors, refusing the application of the margin scheme to a taxable dealer in a situation such as that at issue in the main proceedings, although that scheme is applicable, under the combined provisions of Article 136(b) and Article 314(b) of Directive 2006/112, where the taxable dealer has previously acquired the goods at issue exempt from VAT from another taxable person which was not able to deduct any of the input tax, does not run counter to the principle of fiscal neutrality.

44As the Minister Finansów pointed out at the hearing, in that latter situation the price of the supply of the goods to the taxable dealer includes all the VAT paid as input tax by that other taxable person, which was not able to deduct it, even in part, on the acquisition of those goods. On the other hand, in the situation at issue in the main proceedings that price includes only part of the VAT paid as input tax, namely that which, on account of the restriction provided for in Article 86(3) of the Law on VAT, the taxable person having supplied the goods at issue to the taxable dealer was not able to deduct on the acquisition of those goods.

45As the Polish Government submitted, authorising the application of the margin scheme in a situation such as that at issue in the main proceedings would result in the VAT not being proportional to the price of the second-hand goods resold by the taxable dealer, even though it was possible for a significant part of the input tax paid to be deducted by another taxable person at a prior stage of marketing. Such an outcome would be contrary to the principle that VAT should be of general application, expressed in Article 1(2) of Directive 2006/112.

46Having regard to the foregoing considerations, the answer to the question referred is that Articles 313(1) and 314 of Directive 2006/112, read in conjunction with Articles 136 and 315 of that directive, must be interpreted as meaning that a taxable dealer is not eligible for the application of the margin scheme where it supplies motor vehicles considered to be second-hand goods, within the meaning of Article 311(1)(1) of that directive, which it has previously acquired exempt from VAT from another taxable person which had only a right of partial deduction of input VAT paid on the purchase price of those vehicles.

Costs

47Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the national court, the decision on costs is a matter for that court. Costs incurred in submitting observations to the Court, other than the costs of those parties, are not recoverable.

Operative part

On those grounds, the Court (Third Chamber) hereby rules:

Articles 313(1) and 314 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, read in conjunction with Articles 136 and 315 of that directive must be interpreted as meaning that a taxable dealer is not eligible for the application of the margin scheme where it supplies motor vehicles considered to be second-hand goods, within the meaning of Article 311(1)(1) of that directive, which it has previously acquired exempt from VAT from another taxable person which had only a right of partial deduction of input VAT paid on the purchase price of those vehicles.

Signatures

[Signatures]

( *1 ) Language of the case: Polish.

OPINION OF ADVOCATE GENERAL

MAZÁK

delivered on 24 May 2012 ¹

‛Directive 2006/112/EC — VAT — Special arrangements for taxable dealers — Sale of second-hand vehicles to a final consumer — Application of the profit margin scheme where the dealer purchased the vehicle exempt from tax from a person who had himself exercised a right to deduct part of the input tax’

Introduction

1By this reference for a preliminary ruling, the Court is asked to clarify whether the special ‘profit margin scheme’ — arrangements under which value added tax (‘VAT’) is imposed only on a taxable dealer’s margin, ² specifically in the context of the resale of second-hand passenger vehicles, governed by Article 311 et seq. of Council Directive 2006/112/EC ³ — is applicable in a situation where the taxable dealer bought those vehicles from taxable persons who, upon acquiring the vehicles, had exercised a partial right of deduction in respect of the input tax on the purchase of those goods.

I – Legal framework

2I shall set out the relevant provisions of the EU legal framework below, in the context of my assessment. As regards the national legal framework, Article 43(1)(2) of the Polish Law on VAT, ⁴ in the version applicable to the case in the main proceedings, provides that ‘the supply of second-hand goods shall be exempt from tax, provided that in respect of those goods the person effecting their supply did not have the right to reduce the amount of tax due by the amount of input tax’.

3Until 31 December 2010, Article 86(3) of the Law on VAT provided that: ‘in the case of the purchase of passenger vehicles and other motor vehicles with a total authorised weight not exceeding 3.5 tonnes, the amount of input tax shall correspond to 60% [until 22 August 2005: 50%, subject to slightly different conditions applied in accordance with a formula] of the amount of tax set out in the invoice or of the amount of tax due on the intra-Community acquisition of goods or of the amount of tax due on the supply of goods purchased by the taxable person, but not more than PLN 6 000) [until 22 August 2005: PLN 5 000, subject to slightly different conditions applied in accordance with a formula].’

4Article 120 of the Law on VAT provides that:

‘1. …

For the purposes of this Chapter, “second-hand goods” shall mean tangible movable property that is suitable for further use as it is or after repair, other than the goods referred to in paragraphs 1 to 3 [those paragraphs concern works of art, collectors’ items and antiques and do not apply in the case under consideration] and goods other than precious metals or precious stones ...

…

4. In the case of a taxable person effecting transactions consisting in the supply of used goods, works of art, collectors’ items or antiques acquired previously by that taxable person for the purposes of the activity carried out or imported for the purpose of resale, the taxable amount shall be the margin constituting the difference between the total amount which the acquirer of the goods is to pay and the amount of the acquisition, minus the amount of tax.

…

10. Paragraphs 4 and 5 shall concern supplies of second-hand goods, works of art, collectors’ items or antiques which the taxable person has acquired from:

a natural person, a legal person or an organisational unit without legal personality which is not a taxable person under Article 15 or which is not a taxable person for the purposes of [VAT];

taxable persons as referred to in Article 15, where the supply of those goods was exempt from tax under Article 43(1)(2) or Article 113;

taxable persons, where the supply of those goods was taxed under paragraphs 4 and 5;

taxable persons for the purposes of [VAT], where the supply of those goods was exempt from tax under rules corresponding to the regulations laid down in Article 43(1)(2) or Article 113;

taxable persons for the purposes of [VAT], where [VAT] is imposed on the supply of those goods under rules corresponding to the regulations laid down in paragraphs 4 and 5 and the acquirer holds documents confirming unequivocally that the goods were acquired under those rules.’

5Paragraph 13(1)(5) of the Decree implementing the Law on VAT ⁵ provided that: ‘[t]he supply of passenger vehicles and other motor vehicles by taxable persons who, upon the acquisition thereof, had the right to deduct input tax as referred to in Article 86(3) of the Law shall be exempt from tax where those passenger vehicles or motor vehicles are second-hand goods within the meaning of Article 43(2) of the Law on VAT’.

II – Facts and the question referred

6Bawaria Motors Spółka z o. o. (‘Bawaria’) is an active taxable person under Article 15 of the Law on VAT and carries on an economic activity consisting in the operation of a car showroom in connection with which it acquires and subsequently sells passenger vehicles, both new and second-hand. As part of its activities, it also acquires second-hand passenger vehicles from economic operators which issue Bawaria with VAT invoices at an ‘exempt’ rate and refer to Article 43(1)(2) of the Law on VAT (sale of second-hand goods). Bawaria resells those second-hand passenger vehicles and in so doing makes use of the profit margin scheme set out in Article 120 of the Law on VAT.

7In the course of Bawaria’s activities, situations also arise in which it purchases second-hand passenger vehicles from economic operators who, on acquisition, have deducted input tax within the statutory limits. ⁶ In such a situation, those operators issue Bawaria with a VAT invoice at the ‘exempt’ rate and refer to Paragraph 13(1)(5) of ‘the Decree implementing the Law on VAT’ as the basis for exempting that supply from VAT. On the view that it is entitled, in such a case, to apply the profit margin scheme, Bawaria asked the Polish Minister for Finance on 9 February 2009 to issue a written interpretation of the relevant provisions.

8In the individual interpretation of 20 February 2009, the Minister for Finance found Bawaria’s view to be incorrect. In the grounds for his decision, he concluded essentially that the profit margin scheme is applicable only in situations where the taxable dealer acquired the second-hand good from a taxable person who did not have a right to deduct input tax on the purchase of that good and who accordingly incorporated that tax in his sale price.

9Bawaria brought an action against the above interpretation before the Wojewódzki Sąd Administracyjny w Warszawie (Regional Administrative Court, Warsaw), claiming that it infringes Article 120(4) and (10) of the Law on VAT by dint of misinterpretation in that it excludes the possibility of taxing under the profit margin scheme the supply of second-hand goods acquired with benefit of the exemption under Paragraph 13(1)(5) of the Decree implementing the Law on VAT.

10By judgment of 10 November 2009, the Wojewódzki Sąd Administracyjny annulled the contested interpretation. It found that the essential problem in the case was Paragraph 13(1)(5) of the Decree implementing the Law on VAT, which introduced a tax exemption not provided for under EU law and distorted the clear and logical profit margin scheme — and not only the scheme under EU law but also the scheme under the national provisions concerning taxation of the margin alone. Guided by the need to preserve the coherence of the system of tax on goods and services and the principle of the primacy of EU law, the Wojewódzki Sąd Administracyjny considered that Paragraph 13(1)(5) of the Decree implementing the Law on VAT does not exempt a taxable person from VAT on the supply of a second-hand vehicle where, on acquisition, he was not entitled to deduct input tax in full: the exemption concerns only the part of the tax due which was de facto paid by that taxable person in accordance with the limits laid down in Article 86(3) of the Law on VAT. Accordingly, the exemption does not cover the amount of PLN 6 000 (or 60% of the amount of tax stated in the invoice) since the taxable person effectively relinquished that amount on purchasing the vehicle. This leads to the conclusion that Bawaria may apply the profit margin scheme but only provided it is limited to what the person effecting the supply could not deduct earlier.

11However, Bawaria lodged an appeal in cassation against the above judgment before the referring court — the Naczelny Sąd Administracyjny (Supreme Administrative Court) — claiming essentially infringement of the provisions of substantive law by dint of misinterpretation and misapplication thereof, that is to say, infringement of Article 120(4) and (10) of the Law on VAT, read in conjunction with Paragraph 13(1)(5) of the Decree implementing the Law on VAT and with Article 91(4) to (6) of the Law on VAT, in that it excludes the possibility of fully taxing, within the profit margin scheme, the supply of second-hand goods acquired with benefit of the exemption under Paragraph 13(1)(5) of the Decree implementing the Law on VAT.

12In fact, the Minister for Finance also lodged an appeal in cassation, pleading that the judgment under appeal had been handed down in breach of the law, that is to say, in breach of Article 43(1)(2) of the Law on VAT and Paragraph 13(1)(5) of the Decree implementing the Law on VAT. He maintains that the judgment under appeal is based on the assumption that, where a passenger vehicle acquired from an operator who deducted input tax on the acquisition thereof is supplied, there is no legal basis for taxing the supply of the vehicle under the general rules. The Minister for Finance also maintained the opinion expressed in the individual interpretation of 20 February 2009: where a passenger vehicle is acquired from an operator who deducted input tax in part on the acquisition thereof and on the sale thereof made use of the exemption under Paragraph 13(1)(5) of the Decree implementing the Law on VAT, the company will, on the supply of that vehicle, have no right to determine the taxable amount using the margin method since the conditions laid down in Article 120(10) of the Law on VAT will not be satisfied and in that situation it is necessary to tax the transaction under the general rules.

13According to the referring court, there is no doubt that, in introducing Paragraph 13(1)(5) of the Decree implementing the Law on VAT, the Polish legislature introduced a tax exemption not provided for in EU law. The referring court considers that the relevant provisions give rise to justified uncertainty as to whether, where the supplier has made a partial VAT deduction, his contractor — the taxable dealer — may make use of the special ‘margin’ scheme, being as it is that one of the conditions for applying that scheme is that it must not have been possible in relation to those goods to reduce the amount of output tax by the amount of input tax on the purchase thereof.

14Emphasising that the objective of the arrangements for taxing second-hand goods is to prevent double taxation and distortion of competition as between taxable persons, the referring court observes that, from the point of view of the taxable dealer, there is no difference between, on the one hand, a supply effected by a taxable person for the purposes of VAT, or by a non-taxable person for the purposes of VAT, where the person had no possibility at all of deducting input tax, and, on the other, a supply effected by a taxable person for the purposes of VAT who had such a possibility in part — because, under the provisions of national tax law, they are all exempt when selling second-hand passenger vehicles.

15The referring court adds that, with the introduction of Paragraph 13(1)(5) of the Decree implementing the Law on VAT, the Polish legislature effectively put an end to the multi-stage application of VAT. By dint of that amendment, a commercial taxable dealer has lost both the right to reduce the tax due by deducting the input tax, because his supplier is exempt from it, and the right to apply the special margin taxation scheme, because his supplier made a partial deduction upon purchasing the passenger vehicle. Moreover, this ultimately leads to double taxation in so far as the supplier has not made a tax deduction (above the thresholds of 50% and PLN 5 000 or 60% and PLN 6 000).

16Against that background, the referring court decided to stay the proceedings and to refer the following question to the Court:

‘Are the provisions of Articles 313(1) and 314 of [the VAT Directive], read in conjunction with Articles 136 and 315 thereof, to be interpreted as permitting the application of the special “margin” scheme for taxable dealers in relation to supplies of second-hand goods also where they resell the purchased passenger vehicles and other motor vehicles to which the tax exemption for the supply of passenger vehicles and other vehicles by taxable persons who only have a partial right to deduct input tax on the purchase thereof, as laid down in Article 86(3) of the [Law on VAT], was applied pursuant to the Polish national provisions laid down in Paragraph 13(1)(5) of the [Decree implementing the Law on VAT], where those passenger vehicles and motor vehicles were second-hand goods within the meaning of Article 43(2) of the Law on VAT and Article 311(1)(1) of [the VAT Directive]?’

III – Appraisal

17Written and oral observations have been submitted by Bawaria, by the Polish Government and by the Commission.

18Bawaria contends that a taxable dealer may apply the profit margin scheme in the context of a resale of second-hand vehicles which, when purchased, were covered by the VAT exemption provided for under the Polish Law on VAT in relation to sales of goods carried out by taxable persons who had only a partial right to deduct input tax on the purchase of those goods.

19Bawaria submits that the conditions for applying Article 314 of the VAT Directive are fulfilled in the present case: its supplies concern second-hand goods; the purchase of those goods from another taxable person was exempt from VAT; and that other taxable person did not, in the light of Article 86(3) of the Law on VAT, have a full right of deduction in respect of the input tax on the purchase of the goods.

20According to Bawaria, the interpretation of Articles 311 to 315 of the VAT Directive must take account of the objectives of that directive, that is, the prevention of double taxation and of distortion of competition, universality of VAT and fiscal neutrality.

21First, however, when combined with the obligation to apply the normal VAT scheme, the fact that the exemption provided for under Paragraph 13(1)(5) of the Decree implementing the Law on VAT results in Bawaria losing the right to deduct the fraction of the tax which its own supplier could not deduct — and which, moreover, that supplier incorporated in his sale price — results in double taxation.

22Secondly, according to Bawaria, the fact that the same transaction — the resale of a given second-hand vehicle — is subject to differing treatment depending on whether the supplier was completely deprived of any right of deduction or whether he had a partial right of deduction gives rise to a breach of the principle of fiscal neutrality, in so far as in both the first and the second case the exemption which that supplier enjoyed deprived Bawaria, as the taxable dealer, of any right of deduction.

23Thirdly, the refusal to apply the profit margin scheme to Bawaria in circumstances such as those at issue results in a significant distortion of competition vis-à-vis those to whom that scheme is applied, whereas the value added to the second-hand good between its purchase and resale is identical in all cases. In a free market economy, Bawaria would not be able to pass on to the sale price for the final consumer the increase in VAT engendered by application of the normal VAT scheme and would accordingly be obliged to adapt its price to that of the market (that is to say, the price used by the taxable dealers to whom the profit margin scheme is applied) and, moreover, to sell at a loss when its competitors are making a profit, while at the same time being obliged to pay to the State an amount of VAT which is substantially higher than that paid by those competitors.

24The Polish Government and the Commission, on the other hand, are essentially of the opinion that the profit margin scheme is not applicable in the case before the referring court.

Assessment

25The referring court is asking, in essence, whether the taxable dealer (Bawaria) — who buys second-hand passenger vehicles from taxable persons, who in turn, upon acquisition, have exercised a partial right of deduction in respect of the input tax — is entitled to apply the special profit margin scheme when reselling those vehicles to the final consumer.

26It is appropriate to start by considering the relevant provisions.

27The profit margin scheme is governed by Title XII (‘Special schemes’) of the VAT Directive and, specifically, by Subsection 1 (‘Margin scheme’) of Section 2 (‘Special arrangements for taxable dealers’) of Chapter 4 (‘Special arrangements for second-hand goods, works of art, collectors’ items and antiques’) of that Title, that is to say, by Articles 312 to 325 of the directive.

28In particular, under Article 314 of the VAT Directive, the profit margin scheme concerns only supplies of second-hand goods which taxable dealers (such as Bawaria) acquire from any of the following persons: (a) a non-taxable person; (b) another taxable person, in so far as the supply of goods by that other taxable person is exempt pursuant to Article 136; (c) another taxable person, in so far as the supply of goods by that other taxable person is covered by the exemption for small enterprises provided for in Articles 282 to 292 and involves capital goods; and (d) another taxable dealer, in so far as VAT has been applied to the supply of goods by that other taxable dealer in accordance with the margin scheme.

29It should be pointed out that Article 314 of the VAT Directive lists — exhaustively, to my mind — the taxable persons carrying out supplies of goods to which the profit margin scheme may be applied by the taxable dealer at the next marketing stage.

30It is clear that the feature common to the cases listed in Article 314 is the fact that the person supplying the second-hand vehicle to the taxable dealer has borne the total VAT burden. In other words, that person has had no right to deduct input tax on the purchase of the vehicle.

31Accordingly, as we shall see below and contrary to what Bawaria would seem to suggest, the situation in the case under consideration is clearly not envisaged by Article 314 of the VAT Directive; nor may it be considered to be covered by that provision.

32Indeed, first, it follows from the order for reference that the case under consideration does not fall within the scope of point (a) of Article 314 of the VAT Directive. The person supplying the second-hand good to Bawaria is, itself, a taxable person.

33Secondly, it is also clear from the order for reference that the case under consideration is not covered by point (c) of Article 314 in so far as the supply of the second-hand good to Bawaria did not fall within the exemption for small enterprises provided for in Articles 282 to 292 and involve capital goods. Instead, it was exempted on the basis of a particular provision of Polish law: Paragraph 13(1)(5) of the Decree implementing the Law on VAT.

34Nor, thirdly, does the case under consideration fall under point (d) of Article 314 of the VAT Directive. The taxable persons supplying the second-hand good to Bawaria established VAT invoices with the ‘exempt’ rate and did not supply those goods under the profit margin scheme.

35Lastly, it follows that the only remaining point of Article 314 for us to consider is point (b). This concerns supplies of goods by taxable persons who are exempt pursuant to Article 136 of the VAT Directive.

36A reading of Article 136 shows that that provision, in turn, provides for the exemption of two types of transaction.

37Under point (a), Article 136 provides that Member States are to exempt: the supply of goods used solely for an activity exempted under Article 132 (transaction in the public interest), Article 135 (other exempted transactions, such as financial services), Article 371 (for instance, admission to sporting events or the supply of telecommunications services or goods by public postal services), Articles 375, 376 or 377, Article 378(2), Article 379(2) or Articles 380 to 390 (exemptions granted to certain Member States), if those goods have not given rise to deductibility. However, suffice it to say that none of those categories of exemption are applicable to the case under consideration.

38Under point (b), Article 136 provides that Member States are to exempt the supply of goods on the acquisition or application of which VAT was not deductible, pursuant to Article 176. Article 176 of the VAT Directive lays down the ‘standstill’ clause. Under that clause, where the Council has not yet adopted one of the measures referred to in that provision, the Member States may retain any legislation regarding exclusions from the right to deduct VAT existing at 1 January 1979 or, in the case of the Member States which acceded to the European Union after that date, on the date of their accession. In the case of Poland, the date of accession was 1 May 2004. It may be added in this respect that the Court has already confirmed that interpretation of Article 176 of the VAT Directive. ⁷

39It is clear that the statutory limitation of the right to deduct VAT laid down by the Polish legislature in Article 86(3) of the Law on VAT constitutes, at the same time, a partial exclusion from the right to deduct: it is limited to 60% of the amount of tax stated in the invoice and a maximum of PLN 6 000.

40Until 1 May 2004, in fact, pursuant to Article 25(1)(2) of the 1993 Law on VAT and Excise Duties, ⁸ the purchase by a taxable person of second-hand vehicles with a maximum load of 500 kg was not covered by the right to deduct VAT: that is to say, a total exclusion was in force. However, as of 1 May 2004, Article 86(3) of the 2004 Law on VAT provided for a partial deduction — that is, first 50% and, then, 60% in the version in force on 22 August 2005, but no more than PLN 6 000. I would point out that this, in and of itself, makes sense in so far as the goods in question are ‘dual goods’: passenger vehicles with not only a business use but also a private use. ⁹

41As the Commission rightly pointed out, in the light of the Court’s case-law, ¹⁰ Article 86(3) of the Law on VAT did not, in the case of passenger vehicle purchases, extend the measures limiting the right to deduct as laid down by the Polish legislation before 1 May 2004. As a consequence, the conditions for application of the ‘standstill’ clause are satisfied and the Polish legislation may continue to be applied after 1 May 2004.

42It is worth noting that Article 136 of the VAT Directive does not encompass situations in which a taxable person exercised a ‘partial’ right to deduct input tax. ¹¹ As we have seen in point 38 above, Article 136 of the VAT Directive allows Member States to exempt the supply of goods on the acquisition of which VAT was not deductible pursuant to Article 176 of the VAT Directive.

43In so far as it forms part of arrangements derogating from the general VAT scheme, it is clear to my mind that Article 136 — and, in particular, the terms ‘the supply of goods on the acquisition … of which VAT was not deductible’ ¹² — must be interpreted strictly.

44That approach has been confirmed by the case-law. The Court has already had occasion to emphasise in Jyske Finans ¹³ — which dealt with the issue of taxation on the secondary market of second-hand vehicle sales — that ‘the terms used to specify the exemptions provided for by Article 13 of the Sixth Directive [ ¹⁴] [in particular, Article 13B(c) — now Article 136 of the VAT Directive] are to be interpreted strictly, since these exemptions constitute exceptions to the general principle, in accordance with Article 2 of that directive, that VAT is to be levied on all goods or services supplied for consideration by a taxable person acting as such’. ¹⁵

45Furthermore, the Court also held in Jyske Finans ¹⁶ that ‘it is true that the arrangements for the taxation of the profit margin made by the taxable dealer on the supply of second-hand goods ... constitute a special arrangement for VAT — derogating from the general scheme of the Sixth Directive — which, like the other special arrangements provided for in Articles 24, 25 and 26 of that directive, must be applied only to the extent necessary to achieve their objective’. Indeed, I consider that, in so far as the above arrangements for the taxation of the profit margin constitute a derogation, it is arguable that they should only be applicable in cases where this is expressly envisaged under the VAT system established by the VAT Directive (see Article 131 et seq. thereof).

46Next, it was in that same judgment ¹⁷ that the Court stressed that ‘the exemption provided for by Article 13B(c) of the Sixth Directive ... can apply only to supplies of goods on the acquisition of which VAT did not become deductible in accordance with national legislation’.

47In response to Bawaria’s arguments in the present case, suffice it to point out that, in the same paragraph in Jyske Finans, ¹⁸ the Court stressed that ‘the terms of [Article 13B(c) of the Sixth Directive] are not capable, in that regard, of any other interpretation which would allow a taxable person, who could not take advantage of such an exemption, to avoid double taxation’.

48It follows that Article 136 of the VAT Directive, which is referred to by Article 314(b) of that directive, may not be construed as extending to cover the circumstances of the case before the referring court, in which the taxable person in question had only a ‘partial’ right to deduct input tax — but a right to deduct nonetheless. Article 136 concerns only supplies of goods the purchase of which was completely excluded, under national law, from any right of deduction.

49Accordingly, I consider that, in the case under consideration, the limitation placed on the right of deduction by Article 86(3) of the Law on VAT — while, admittedly, covered by the standstill clause under Article 176 of the VAT Directive, ¹⁹ which is referred to by Article 136(b) of that directive — nevertheless does not amount, as required, to the exclusion, in the strict sense, of the right of deduction, in so far as it provides, on the contrary, for a partial right of deduction.

50The profit margin scheme, which consists in applying the VAT solely on the difference between the sale price of a second-hand good, as fixed by a taxable dealer, and the purchase price, is a special scheme which makes it possible to prevent second-hand goods, on their reintroduction into commercial channels, from being taxed a second time — that is, it helps avoid double taxation — without the tax still included in their price being taken into account. ²⁰

51When these second-hand goods are reintroduced into commercial channels subject to VAT, the special profit margin scheme is applicable only to cases where they were reintroduced by a non-taxable person (final customer) or, if they were reintroduced by a taxable person, only where this was done at a time when this reintroduction was completely exempt from VAT.

52It follows that whenever a taxable dealer has exercised a right to deduct input tax, albeit merely a partial such right, the profit margin scheme should not be applied.

53It may be pointed out in this respect that, admittedly, the objective of the profit margin scheme is to avoid situations where second-hand goods are exposed to double taxation on being reintroduced into commercial channels, as a result of failure to take into account the tax still incorporated in their price. However, suffice it to say that, in the case under consideration, it is incumbent on the Polish Republic to take the measures necessary to prevent the double taxation of taxable dealers such as Bawaria, a situation which arises owing to the combination of (i) application of the normal VAT scheme and (ii) the fact that Bawaria is prohibited from deducting the tax included in the price of a second-hand vehicle bought from a supplier who had benefited from the exemption which is provided for in Paragraph 13(1)(5) of the Decree implementing the Law on VAT ²¹ and which is, arguably, not entirely consistent with the VAT Directive.

54Indeed, that exemption finds no support in the provisions of the VAT Directive which, in Article 131 et seq., sets out an exhaustive list of the activities exempted from VAT.

55As a general remark, I consider (as does the Commission) that what is necessary is to provide a system which is appropriate for the operation of companies which use vehicles but not on a full-time basis for requirements of the taxable activity. However, I would say that Member States are not empowered to provide for solutions which are not envisaged by the VAT Directive in order to alleviate difficulties encountered by companies in their day-to-day operations.

56I also consider that application of the profit margin scheme in the case under consideration would, in any event, be contrary to the principles underlying the VAT Directive and therefore be unjustified.

57The importance of avoiding double taxation is the reason why it is a common feature of the relevant provisions that the VAT burden must have been borne in full. That is obviously conditional on the supplier having absolutely no right of deduction in a case such as this — which means that the VAT needs still to be contained in total.

58If the profit margin scheme were applied in a situation such as that of Bawaria then the result would be a lack of taxation on the part where deduction was applied. That would be contrary to the principle of the universality of VAT, in so far as the turnover of the taxable dealer would not be taxed in full, whereas the supplier who supplied him the second-hand goods would have been able to exercise a partial right to deduction of the tax. It may be added that, at the same time, it would also be contrary to the principle of preserving competition.

59The principle of the universality of VAT is enshrined in Article 1 of the VAT Directive. That provision provides inter alia that ‘on each transaction, VAT, calculated on the price of the goods or services at the rate applicable to such goods or services, shall be chargeable after deduction of the amount of VAT borne directly by the various cost components’. The universality of imposing VAT is manifest both at the personal level (every transaction is taxed independently of the person who carries it out — as long as that transaction is effected in the context of an economic activity in the sense of the VAT Directive) and at the material level (each supply of goods is, in principle, taxed).

60The case under consideration demonstrates, therefore, precisely why it is necessary that a derogation from the rule of the universality of VAT must be treated as wholly and exclusively exceptional and that any such derogation must be based on the provisions of the VAT Directive.

61Bawaria, however, seeks to rely on the ‘adjustment’ scheme provided for under Articles 187 to 189 of the VAT Directive — which, it argues, should not be eluded by a supplier who, while able to deduct part of the input tax on the purchase, sells the second-hand good to the taxable dealer free of VAT, and which is meant to help avert the risk of a reduction of tax income in such a case.

62That argument cannot succeed.

63As the Commission pointed out at the hearing, that approach would lead to the repeated taxation of car buyers where VAT was not deducted — in relation, moreover, to use which is not taxable. As the Polish Government rightly noted, the approach argued for by Bawaria would only bring about a reduction of input tax and — importantly — the fact remains that it would still not eliminate some double taxation. To my way of thinking, the profit margin scheme is manifestly not an appropriate means of remedying the fact that certain provisions of Polish law (Paragraph 13(1)(5) of the Decree implementing the Law on VAT) are not entirely consistent with the VAT Directive. ²² Indeed, to my mind, it is clear that, in Bawaria’s case, it is the normal provisions which should be applied instead.

64It is also clear that, if the exemption under Paragraph 13(1)(5) of the Decree implementing the Law on VAT were eliminated, the invoice in question would show the input tax, making it possible for a taxable dealer (reseller) such as Bawaria to deduct the VAT: in that way, the problem in the main proceedings would appear to be eliminated.

65While it would appear that in the case of Bawaria we are dealing with a double taxation situation, which would normally be incompatible with the principles underlying VAT, the fact remains that the case under consideration concerns a particular good: second-hand vehicles which were used not only for business but also for private use. It is obvious that, in so far as the vehicle was used privately, VAT may not be deducted.

66In view of all the foregoing considerations, I consider that, upon a proper construction of the VAT Directive, it clearly follows that, where a taxable dealer is supplied with second-hand vehicles by a taxable person who, on the acquisition of those vehicles, exercised a partial right of deduction, pursuant to Article 86(3) of the Law on VAT, the condition laid down in Article 314(b) of the VAT Directive is not fulfilled. In consequence, the taxable dealer is not entitled to apply the special profit margin scheme.

IV – Conclusion

Conclusion

67In the light of the above considerations, I suggest that the Court give the following answer to the question referred by the Naczelny Sąd Administracyjny:

Articles 313(1) and 314 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, read in conjunction with Articles 136 and 315 of that directive, must be interpreted as precluding application of the special margin scheme for taxable dealers in relation to the resale of second-hand passenger vehicles and other motor vehicles purchased from taxable persons who, upon the acquisition of those vehicles, exercised a right to deduct part of the input tax on the purchase, in accordance with Article 86(3) of the Polish Law on VAT.

¹ Original language: English.

² That is to say, the difference between the sale price and the purchase price.

³ Directive of 28 November 2006 on the common system of value added tax (OJ 2006 L 347, p. 1, ‘the VAT Directive’).

⁴ Ustawa o podatku od towarów i usług (Law on the tax on goods and services) of 11 March 2004 (Dziennik Ustaw No 54, item 535, as amended; ‘the Law on VAT’).

⁵ Decree of the Minister for Finance of 28 November 2008 on the implementation of certain provisions of the Law on the tax on goods and services (Dziennik Ustaw No 212, item 1336).

⁶ Laid down in Article 86(3) of the Law on VAT (50% or 60%, but no more than PLN 5 000 or PLN 6 000).

⁷ See, for instance, Case C-280/04 Jyske Finans [2005] ECR I-10683, paragraph 23; Case C-371/07 Danfoss and AstraZeneca [2008] ECR I-9549, paragraphs 28 to 29; Joined Cases C-538/08 and C-33/09 X Holding and Oracle Nederland [2010] ECR I-3129, paragraph 38; and Case C-395/09 Oasis East [2010] ECR I-8811, paragraphs 19 to 20. In Case C-414/07 Magoora [2008] ECR I-10921, which also concerned Poland, the Court held essentially that the ‘standstill’ clause is not intended to allow a new Member State to amend its domestic legislation in such a way as to be inconsistent with the objective of the VAT Directive. In any event, the VAT Directive precludes a Member State from subsequently amending legislation which entered into force on that date in such a way as to widen those restrictions as compared with their scope prior to that date.

⁸ Law of 8 January 1993 on the tax on goods and services and on excise duties, Dziennik Ustaw No 11, item 50.

⁹ At the hearing, in fact, the Commission pointed out that Bawaria’s situation in the case under consideration constitutes a ‘typical situation of resellers of used cars in Poland’.

¹⁰ See, for instance, Magoora, cited in footnote 7, and the judgment of the Naczelny Sąd Administracyjny of 9 June 2010, I FSK 960/09.

¹¹ Indeed, the referring court recognised this in the order for reference, when it rightly pointed out that, in principle, EU law does not allow the partial deduction of VAT by the acquirer of the goods or services, even in relation to fixed assets (capital goods). This also means that there are no EU rules on the possibility or otherwise of exempting such goods or services from VAT or on the special profit margin scheme applied by taxable dealers.

¹² Emphasis added.

¹³ Cited in footnote 7, paragraph 21.

¹⁴ Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation 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) as amended by Council Directive 94/5/EC of 14 February 1994 (OJ 1994 L 60, p. 16) (‘the Sixth Directive’).

¹⁵ See, inter alia, Case C-8/01 Taksatorringen [2003] ECR I-13711, paragraph 36; Case C-428/02 Fonden Marselisborg Lystbådehavn [2005] ECR I-1527, paragraph 29; and Case C-270/09 MacDonald Resorts [2010] ECR I-13179, paragraph 45 and the case-law cited. See also Case C-175/09 Axa UK [2010] ECR I-10701, paragraph 25 and the case-law cited.

¹⁶ Cited in footnote 7; see paragraph 35, relating to the application of the arrangements provided for in Article 26 and Article 25 of the Sixth Directive; see also Joined Cases C-308/96 and C-94/97 Madgett and Baldwin [1998] ECR I-6229, paragraph 34, and Case C-321/02 Harbs [2004] ECR I-7101, paragraph 27.

¹⁷ Jyske Finans, cited in footnote 7, paragraph 24.

¹⁸ Idem.

¹⁹ See, to that effect, Magoora, cited in footnote 7; X Holding, cited in footnote 7, paragraphs 59 to 61; and Oasis East, cited in footnote 7, paragraphs 19 and 20.

²⁰ Cf. Case C-131/91 ‘K’Line Air Service Europe [1992] ECR I-4513, paragraph 19.

²¹ Even the referring court, in its analysis in the order for reference, recognises at the outset that ‘there is no doubt that, in Paragraph 13(1)(5) of the Decree implementing the Law on VAT, the Polish legislature introduced a tax exemption not provided for under [EU] law’.

²² See also point 54 above.