C-2/08 Fallimento Olimpiclub

JUDGMENT OF THE COURT (Second Chamber)

Legal context and the dispute

3 September 2009 *

In Case C-2/08, REFERENCE for a preliminary ruling under Article 234 EC from the Corte suprema di cassazione (Italy), made by decision of 10 October 2007, 2 January 2008, in the proceedings

’

Amministrazione dell Economia e delle Finanze,

Agenzia delle Entrate,

v

Fallimento Olimpiclub Srl,

* Language of the case: Italian.

received at the Court on THE COURT (Second Chamber),

composed of C.W.A. Timmermans, President of the Chamber, K. Schiemann ū (Rapporteur), P. K ris, L. Bay Larsen and C. Toader, Judges,

Advocate General: J. Mazák, Ş ş Registrar: R. ere , Administrator,

having regard to the written procedure and further to the hearing on 22 January 2009,

after considering the observations submitted on behalf of:

Fallimento Olimpiclub Srl, by G. Tinelli, avvocato,

the Italian Government, by I. Bruni, acting as Agent, and P. Gentili and W. Ferrante, avvocati dello Stato,

the Slovak Government, by B. Ricziová, acting as Agent,

the Commission of the European Communities, by E. Traversa and M. Afonso, acting as Agents, after hearing the Opinion of the Advocate General at the sitting on 24 March 2009,

gives the following

Judgment

1This reference for a preliminary ruling concerns the application of the principle of res ‘ ’

judicata in legal proceedings relating to value added tax ( VAT ).

2The reference has been made in proceedings between Fallimento Olimpiclub Srl ‘ ’ ’

(Olimpiclub Srl in liquidation; Olimpiclub ) and the Amministrazione dell Economia e ‘ ’

delle Finanze ( the Finance Administration ) concerning four VAT adjustment notices addressed to Olimpiclub for the tax years 1988 to 1991.

National law

‘ ’

3Article 2909 of the Italian Civil Code (codice civile), entitled Res judicata , provides as follows:

‘ Findings made in judgments which have acquired the force of res judicata shall be ’

binding in all respects on the parties, their lawful successors or assignees.

4That provision was interpreted by the Corte suprema di cassazione (Supreme Court of Cassation) in its judgment No 13916/06 as follows:

‘… where two sets of proceedings between the same parties are concerned with the same legal relationship, and one of those sets of proceedings has culminated in a judgment that has acquired the force of res judicata, the findings thus made concerning that legal situation or concerning the resolution of points of fact or of law on a fundamental issue common to both cases and thus constituting the logical premiss underpinning the decision in the operative part preclude that same issue of law, now settled, from being re-examined, even if the aims of the subsequent proceedings are different from those reflected in the subject-matter and form of order sought in the ’

first.

The dispute in the main proceedings and the question referred

5Olimpiclub, a limited liability company the objects of which are to construct and manage sporting facilities, owns a sports complex located on land owned by the Italian State. On 27 December 1985, it concluded with the Associazione Polisportiva ‘ ’ — Olimpiclub ( the Associazione ) a non-profit-making association, most of the founding members of which also held shares in Olimpiclub a contract under which ‘ the Associazione had the use of all the facilities of that sports complex ( the contratto di ’

comodato ). In return, the Associazione was, first, to pay the State fee (the sum payable for the grant of the use of land) to the Italian State; secondly, to repay standard costs in the amount of ITL 5 million per year; and, thirdly, to transfer to Olimpiclub its entire gross income, consisting of the total amount of the annual fees paid by its members.

6In 1992, following investigations into the contratto di comodato, the Finance Administration reached the conclusion that the parties to the contract had, in reality, by means of an act which on the face of it was lawful, intended solely to circumvent the legislation in order to obtain a tax advantage. Thus, Olimpiclub had transferred to a non-profit-making association all the administrative and management burdens of the sports complex in question, while collecting the income produced by that association in the form of the fees paid by its members, which on that basis was not liable to VAT. Since the Finance Administration therefore considered that the contratto di comodato could not be relied upon against it, it apportioned to Olimpiclub the entire gross income produced by the Associazione for the years under investigation and, accordingly, by means of four adjustment notices, corrected theVAT returns submitted by Olimpiclub for the tax years 1988 to 1991.

7Olimpiclub challenged those adjustment notices before the Commissione tributaria provinciale di primo grado di Roma (Provincial Tax Court of First Instance, Rome), which upheld that action, finding that the Finance Administration had wrongly disapplied the legal effects of the contratto di comodato, since it had failed to show that the agreement was fraudulent.

8The Finance Administration brought an appeal against that decision before the Commissione tributaria regionale del Lazio (Regional Tax Court, Lazio), which upheld the decision. That court found that the Finance Administration had not proved fraudulent intent on the part of the two parties that had entered into the contratto di comodato, since it was plausible that their reasons for concluding that contract had to do with the fact that it was uneconomic for a commercial company directly to manage what are essentially sporting activities.

9The Finance Administration brought an appeal on a point of law before the referring court against that last decision. Since Olimpiclub had in the intervening period been put into liquidation, the administrator in the liquidation proceedings appeared before the referring court as defendant.

10In those proceedings, the administrator relied on the existence of two judgments of the Commissione tributaria regionale del Lazio, which had acquired the force of res judicata and concerned VAT adjustment notices issued as part of the same tax inspection of Olimpiclub, but relating to other tax years, namely judgments No 138/43/00 and No 67/01/03, for the tax years 1992 and 1987 respectively.

11Even though they related to different tax periods, the findings in those judgments and the approach adopted are binding in the main proceedings pursuant to Article 2909 of the Italian Civil Code, which lays down the principle of res judicata.

12It is apparent from the order for reference that, in taxation matters, when interpreting Article 2909 of the Italian Civil Code, the Italian courts adhered for a long time to the principle of the discreteness of final judgments, in accordance with which each tax year remains separate from other tax years, also in terms of the legal relationship between the taxpayer and the tax authorities, which is distinct from that of previous or subsequent tax years. The effect is that, whenever disputes relating to different tax years for the same tax (even if they concern similar questions) are decided separately by a number of judgments, each dispute remains separate and the final ruling has no force of res judicata for disputes concerning a different tax year.

13However, that approach has recently been modified, owing in particular to the fact that the principle of the discreteness of final judgments has been discarded. It is now possible, where the findings in a judgment delivered in one dispute relate to issues similar to those arising in another dispute, for the reasoning of that judgment to be properly relied on in the other dispute, even though the judgment in question concerns a different tax period.

14In so far as the two judgments referred to in paragraph 10 of the present judgment found that there were valid economic reasons for the conclusion of the contratto di comodato between the Associazione and Olimpiclub and, accordingly, found in favour of Olimpiclub, the latter has contended that the appeal before the referring court must be declared inadmissible in that it seeks to obtain a fresh ruling on the same issues of fact and of law.

15It is in the light of those factors that the referring court regards itself as bound by those judgments, which definitively hold that the contratto di comodato is genuine, lawful and not fraudulent. However, the referring court points out that this could preclude it from examining the main proceedings in the light of the Community legislation and the case-law of the Court in relation to VAT, in particular Case C-255/02 Halifax and Others [2006] ECR I-1609, and possibly from determining the existence of an abuse of rights.

16The referring court takes particular note of Case C-119/05 Lucchini [2007] ECR I-6199, in which the Court of Justice held that Community law precludes the application of a provision of national law, such as Article 2909 of the Italian Civil Code, laying down the principle of res judicata, where the application of that provision prevents the recovery of State aid granted in breach of Community law. The referring court states that that judgment seems to illustrate a trend in the case-law of the Court towards considering the principle of res judicata to be relative and requiring it to be disapplied in order to uphold the primacy of provisions of Community law and to prevent conflict with those provisions. The national court refers in that regard to Case C-126/97 Eco Swiss [1999] ECR I-3055; Case C-118/00 Larsy [2001] ECR I-5063; Case C-201/02 Wells [2004] ECR I-723; and Case C-453/00 Kühne & Heitz [2004] ECR I-837.

17Since the levying of VAT plays a central role in the accrual of the European ’

Communitys own resources, the referring court is uncertain whether the case-law of the Court requires the binding authority of a judgment which has acquired the force of res judicata by reason of national law to be disregarded. In the main proceedings, the application of Article 2909 of the Italian Civil Code could prevent the full implementation of the principle of combating abuse of rights, a principle which the Court has developed in relation to VAT as a means of ensuring that the Community VAT system is fully implemented. In that connection, the national court refers to Halifax and Others.

18It was in those circumstances that the Corte suprema di cassazione decided to stay proceedings and to refer the following question to the Court of Justice for a preliminary ruling:

‘ Does Community law preclude the application of a provision of national law, such as Article 2909 of the Italian Civil Code, laying down the principle of res judicata, where the application of that provision would lead to a result incompatible with Community law, thereby thwarting its application, even in areas other than State aid (in relation to … … which, see Lucchini ) and, in particular, in matters relating to VATand with respect to the abuse of rights in order to obtain undue tax savings, in particular in the light also of the rules of national law as interpreted in the case-law of the [Corte suprema di cassazione] according to which, in tax disputes, where a final judgment drawn up by another court in a case on the same subject contains a finding on a fundamental issue common to other cases, it has binding authority as regards that issue, even if it was ’

drawn up in relation to a different tax period?

The question referred for a preliminary ruling

19The referring court asks, in essence, whether Community law precludes the application, in circumstances such as those at issue in the main proceedings, of a provision of national law, such as Article 2909 of the Italian Civil Code, in aVAT dispute in relation to a tax year for which no final judicial decision has yet been delivered, where that provision would prevent the referring court from taking into consideration Community law rules concerning abusive practice in the field of VAT.

20It should be emphasised at the outset that, in order to answer that question, it is irrelevant that the referring court did not set out precisely the reasons for which it is legitimate to doubt that the contratto di comodato is genuine, lawful and not fraudulent.

21Olimpiclub relied on the principle of res judicata, as interpreted in the Italian legal system and set out in paragraph 13 of the present judgment, in order to assert the binding and final nature of the finding, made in the earlier judgments relating to different tax periods, that the contratto di comodato is genuine, lawful and not fraudulent.

22In that connection, attention should be drawn to the importance, both for the Community legal order and for the national legal systems, of the principle of res judicata. In order to ensure stability of the law and legal relations, as well as the sound administration of justice, it is important that judicial decisions which have become definitive after all rights of appeal have been exhausted or after expiry of the time-limits provided for in that regard can no longer be called into question (Case C-224/01 Köbler [2003] ECR I-10239, paragraph 38, and Case C-234/04 Kapferer [2006] ECR I-2585, paragraph 20).

23Accordingly, Community law does not require a national court to disapply domestic rules of procedure conferring finality on a decision, even if to do so would make it possible to remedy an infringement of Community law on the part of the decision in question (see Kapferer, paragraph 21).

24In the absence of Community legislation in this area, the rules implementing the principle of res judicata are a matter for the national legal order, in accordance with the principle of the procedural autonomy of the Member States. However, those rules must not be less favourable than those governing similar domestic actions (principle of equivalence); nor may they be framed in such a way as to make it in practice impossible or excessively difficult to exercise the rights conferred by Community law (principle of effectiveness) (see, to that effect, Kapferer, paragraph 22).

25The above analysis cannot be called into question by Lucchini. That judgment concerned a highly specific situation, in which the matters at issue were principles governing the division of powers between the Member States and the Community in the area of State aid, the Commission of the European Communities having exclusive competence to assess the compatibility with the common market of a national State aid measure (see, to that effect, Lucchini, paragraphs 52 and 62). Issues of that nature, relating to the division of powers, do not arise in the present case.

26Here the question is more specifically whether it is compatible with the principle of effectiveness to interpret res judicata in the manner referred to by the national court, that is to say, as meaning that, in tax disputes, where a final judgment in a given case concerns a fundamental issue common to other cases, it has binding authority as regards that issue, even if its findings were made in relation to a different tax period.

27In that connection, it should be borne in mind that the Court has already held that every case in which the question arises as to whether a national procedural provision makes the application of Community law impossible or excessively difficult must be analysed by reference to the role of that provision in the procedure, its progress and its special features, viewed as a whole, before the various national bodies. For those purposes, account must be taken, where appropriate, of the basic principles of the domestic judicial system, such as protection of the rights of the defence, the principle of legal certainty and the proper conduct of procedure (Case C-312/93 Peterbroeck [1995] ECR I-4599, paragraph 14).

28It is therefore necessary to determine, specifically, whether the abovementioned interpretation of Article 2909 of the Italian Civil Code may be justified with a view to protecting the principle of legal certainty, in the light of its implications for the application of Community law.

— —

29It should be noted that as the national court itself points out not only does the interpretation in question prevent a judicial decision that has acquired the force of res judicata from being called into question, even if that decision entails a breach of Community law; it also prevents any finding on a fundamental issue common to other cases, contained in a judicial decision which has acquired the force of res judicata, from being called into question in the context of judicial scrutiny of another decision taken by the relevant tax authority in respect of the same taxpayer or taxable person, but relating to a different tax year.

30Accordingly, if the principle of res judicata were to be applied in that manner, the effect would be that, if ever the judicial decision that had become final were based on an interpretation of the Community rules concerning abusive practice in the field of VAT which was at odds with Community law, those rules would continue to be misapplied for each new tax year, without it being possible to rectify the interpretation.

31In those circumstances, it must be held that such extensive obstacles to the effective application of the Community rules on VATcannot reasonably be regarded as justified in the interests of legal certainty and must therefore be considered to be contrary to the principle of effectiveness.

32Consequently, the answer to the question referred is that Community law precludes the application, in circumstances such as those of the case before the referring court, of a provision of national law, such as Article 2909 of the Italian Civil Code, in aVAT dispute relating to a tax year for which no final judicial decision has yet been delivered, to the extent that it would prevent the national court seised of that dispute from taking into consideration the rules of Community law concerning abusive practice in the field of VAT.

Costs

33Since 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 (Second Chamber) hereby rules:

Community law precludes the application, in circumstances such as those of the case before the referring court, of a provision of national law, such as Article 2909 of the Italian Civil Code, in a dispute concerning value added tax and relating to a tax year for which no final judicial decision has yet been delivered, to the extent that it would prevent the national court seised of that dispute from taking into consideration the rules of Community law concerning abusive practice in the field of value added tax.

[Signatures]

Opinion of the Advocate-General

I – Introduction

1By order of 10 October 2007, received at the Court on 2 January 2008, the Corte suprema di cassazione (Italy) (the Supreme Court of Cassation), referred to the Court of Justice a question for a preliminary ruling under Article 234 EC concerning the application of the principle of res judicata in legal proceedings relating to payment of VAT.

2The referring court essentially wishes to ascertain whether, in the light of the Lucchini case-law, (2) Community law requires it to disapply a domestic rule laying down the principle of res judicata , which confers finality on a judgment drawn up by another court in a case on the same subject, if to do so would enable it to find in a dispute relating to the payment of VAT that the transaction concerned was actually designed solely to obtain a tax advantage and thus constituted abusive practice.

3That issue has been raised in the context of proceedings between, on the one hand, Fallimento Olimpiclub Srl in liquidation (‘Olimpiclub’) and, on the other, the Amministrazione dell’Economia e delle Finanze (the Finance Administration) and the Agenzia delle Entrate (the Revenue Authority) concerning VAT adjustment notices for the years 1988 to 1991.

II – Legal framework

4Article 2909 of the Codice Civile (Italian Civil Code), laying down the principle of res judicata , provides as follows:

‘Findings made in judgments which have acquired the force of res judicata shall be binding on the parties, their lawful successors and assignees.’

5In that regard, it is noted in the order for reference that, as far as tax cases are concerned, the Supreme Court of Cassation has for a long time been anchored to what is known as the principle of the ‘frammentazione dei giudicati’ (‘the discreteness of final judgments’), in accordance with which each tax year remains conceptually quite separate from other tax years and engenders, as between the taxpayer and the tax authorities, a legal relationship that is distinct from that relating to previous or subsequent tax years. The effect is that, whenever disputes relate to different tax years, they are decided separately by a number of judgments – rather than by a single judgment fusing the various relevant rulings – even if they relate to the same tax and even though they concern questions which are, in whole or in part, the same. This means that none of the rulings made can constitute res judicata for the purposes of a case concerning a different tax year.

6However, according to the order for reference, the principle of the ‘frammentazione dei giudicati’ has been modified by the more recent case-law of the Supreme Court of Cassation, according to which the subject-matter of a tax judgment is not necessarily confined to the contested measure, but may also cover the merits of the tax claim made by the authorities and the legal context underlying that claim. It has thus been sought to emphasise the unitary nature of the tax, despite the fact that it relates to separate, successive tax periods. (3)

7Thus, a judgment may now properly be relied on in tax proceedings even where it has been delivered in relation to a tax period other than that to which those proceedings relate, provided that it concerns a fundamental point common to both cases. The reason for this, according to the referring court, is that the principle according to which tax years are to be regarded as discrete does not prevent a judgment relating to one tax period from being binding also in relation to other tax periods, where important elements relevant to more than one tax period are involved.

III – Facts, procedure and questions referred for a preliminary ruling

8Olimpiclub is a limited liability company the objects of which are to construct and manage sporting facilities and which owns a sports complex located on State-owned land.

9On 27 December 1985, Olimpiclub concluded with the Associazione Polisportiva Olimpiclub (Olimpiclub Sports Association, ‘the Association’), virtually all of the founding members of which also held shares in Olimpiclub, a contratto di comodato , in other words, a contract by which one party transfers to the other movable or immovable property for that party’s use for a given or indeterminate period, the transferee being under an obligation to return the property (‘the contract of 27 December 1985’). Under that contract, the use of all the equipment installed in the sporting complex was granted to the Association, the only consideration being that the Association should bear the cost of the State fee, repay standard costs in the amount of LIT 5 000 000 per year, and transfer to Olimpiclub its entire gross income, consisting of the total amount of the fees paid by its members.

10In 1992, the Guardia di Finanza (the Financial Police) conducted tax investigations which were subsequently also extended to the Association and which culminated in the drawing up of two reports (‘the reports’) disclosing irregularities regarding the contract of 27 December 1985. It was concluded that that contract could not be relied upon against the tax authorities.

11As a consequence, four VAT adjustment notices were issued in respect of the tax years 1988 to 1991. Olimpiclub challenged those notices before the Commissione tributaria provinciale di primo grado di Roma (Provincial Tax Court of First Instance, Rome).

12Before that court, the Agenzia delle Entrate maintained that the investigations carried out by the Guardia di Finanzia had revealed that, by concluding the formally lawful contract of 27 December 1985, the parties had, in reality, intended solely to circumvent tax legislation in order to obtain an undue tax saving for Olimpiclub. In essence, by having recourse to the device of the contratto di comodato , Olimpiclub had transferred to a non-profit-making association all the administrative and management burdens of the sports complex, thus benefiting from the income produced by the Association without any kind of tax being levied on that income. By managing the company’s facilities, the Association was, in fact, producing revenue free of direct or indirect taxation, in so far as it was produced in the form of income from membership fees.

13The Commissione tributaria provinciale, however, upheld Olimpiclub’s action, stating that the Amministrazione Finanziaria could not nullify the legal effects of the contract of 27 December 1985 and that that agreement was, in any event, not fraudulent.

14That decision was upheld on appeal by the Commissione tributaria regionale del Lazio (Regional Tax Court, Lazio), which confirmed, in particular, that fraudulent intent had not been proved, given that the reasons for which the contract of 27 December 1985 had been concluded were to be found in the fact that it was uneconomic for the commercial company directly to manage what are essentially sporting activities, and not in any intention to circumvent tax obligations.

15In the main proceedings, the Corte suprema di cassazione has to decide on the appeal which the Amministrazione Finanziaria brought against that judgment on a point of law. Since Olimpiclub had, in the intervening period, been put into liquidation, the administrator in the liquidation proceedings appeared before that court and made a counterclaim.

16The Amministrazione Finanziaria has put forward a single complex ground of appeal, arguing that the grounds stated in relation to a decisive issue in the dispute are illogical and inadequate, and alleging infringement and misapplication of Article 116 of the Civil Code of Procedure, as well as of Article 37a of Presidential Decree No 600/1973 and Article 10 of Law No 408/1990, both of which the Regional Tax Court had declared were not applicable to the case. That ground of appeal is essentially designed to challenge the finding in the judgment of the Commissione tributaria regionale del Lazio that there was no intention to avoid tax.

17Olimpiclub, on the other hand, referred in its defence, in particular, to a number of final judgments, handed down by the Commissione tributaria provinciale di Roma and the Commissione tributaria regionale del Lazio, and concerning tax assessments relating to different taxation periods but based on the same reports as those which gave rise to the tax assessments and adjustment notes at issue in the case before the referring court.

18Olimpiclub submitted that those judgments, in which it was held that the mechanism set up under the contract of 27 December 1985 was not illicit for purposes of taxation, had acquired the authority of res judicata as laid down in Article 2909 of the Italian Civil Code and that, in consequence, notwithstanding the fact that the findings contained therein relate to tax years other than those at issue, they have binding force for the purposes of the case before the referring court. As a result, according to Olimpiclub, the referring court is precluded from re-examining the question of abusive practice.

19In respect of that preliminary objection as to the admissibility of the appeal, based on the authority of res judicata , the referring court states that, while the judgments of the Commissione tributaria provinciale di Roma referred to by Olimpiclub fall to be regarded as irrelevant for present purposes, Judgments Nos 138/43/00 and 67/01/03 of the Commissione tributaria regionale del Lazio, delivered in VAT disputes and relating, respectively, to the 1987 and 1992 tax years, can, in principle, be relied on.

20It appears thus from the order for reference that the Corte suprema di cassazione considers itself, pursuant to the principle of res judicata, as laid down in Article 2909 of the Italian Civil Code and as interpreted by that same court, bound by those judgments, which were made on the basis of the same questions of fact and of law as those underlying the present case and which concluded that the contract of 27 December 1985 was not abusive or fraudulent.

21The referring court notes, however, that that legal situation – where it is possible, in proceedings such as those before it, for a taxable person to rely on a final judgment drawn up by another court and relating to a different tax period – appears, given that it may prevent it from determining the existence of an abuse of rights, to thwart the prohibition of the abuse of rights as developed in the case-law of the Court of Justice, specifically in relation to VAT, as a means of ensuring that the Community taxation system is fully implemented. (4)

22According to the referring court, in that regard doubt also arises in relation to the case-law of the Court on the obligation to give full effectiveness to provisions of Community law and to disapply provisions of national (procedural) law which are in conflict with Community law and which may compromise its application. (5)

23In particular, the referring court is uncertain as to the pertinence to the present case of Lucchini , (6) in which the Court affirmed the principle that Community law precludes the application of a provision of national law such as Article 2909 of the Italian Civil Code, which seeks to lay down the principle of res judicata , where the application of such a provision prevents the recovery of State aid granted in breach of Community law. In the view of the Corte suprema di cassazione, that judgment appears to form part of a more general trend in the case-law of the Court of Justice towards considering the authority of judgments handed down by national courts to be relative, and requiring them to be disregarded on grounds of the primacy of Community law. (7)

24Against that background, the Corte suprema di cassazione decided to stay the proceedings and to refer the following question to the Court of Justice for a preliminary ruling:

‘Does Community law preclude the application of a provision of national law, such as Article 2909 of the [Italian] Civil Code, laying down the principle of res judicata , where the application of that provision would lead to a result incompatible with Community law, thereby thwarting its application, even in areas other than State aid (in relation to which, see Case C‑119/05 Lucchini SpA [2007] ECR I‑[6199]) and, in particular, in matters relating to VAT and with respect to the misuse of rights in order to obtain undue tax savings, in particular in the light also of the rules of national law – as interpreted in the case-law of this Court – according to which, in tax disputes, where a giudicato esterno [a final judgment drawn up by another court in a case on the same subject] contains a finding on a fundamental issue common to other cases, it has binding authority as regards that issue, even if it was drawn up in relation to a different tax period?’

IV – Legal analysis

25As is apparent from the foregoing, by its question the referring court is essentially asking whether Community law precludes the application of a provision of national law such as Article 2909 of the Italian Civil Code, which seeks to lay down the principle of res judicata , in so far as the application of that provision, as interpreted by the national courts, would prevent a national court – in a dispute such as that before the referring court concerning the application of VAT – from examining whether a certain transaction constitutes abusive practice, where a decision on that issue is already contained in a final judgment drawn up by another court, albeit in relation to a different tax period.

A – Main submissions of the parties

26In the present proceedings, written observations have been submitted by the Italian Government, by the Commission and by Olimpiclub. Apart from Olimpiclub, those parties were represented at the hearing on 22 January 2009, at which, additionally, the Slovakian Government was represented.

27All parties essentially agree that the judgment of the Court in Lucchini (8) cannot be transposed to a situation such as that in the case before the referring court, and that that judgment is therefore not pertinent in the present case. They submit in that regard, in particular, that Lucchini must be read in its specific context, that is to say, in relation to the failure by a national court to take account of an existing decision of the Commission on the compatibility of particular State aid with the common market. Whereas Lucchini thus concerned a matter over which the national courts do not in principle have any jurisdiction, in the case before the referring court it is entirely for the national fiscal authorities and courts to apply the VAT system and to establish whether there is abusive practice.

28The Commission submits, more specifically, that it is clear from the case-law, mentioned by the referring court, on the relationship between principles of Community law and national procedural law that it is only exceptionally and in accordance with rather stringent conditions that the Court of Justice will conclude that a rule of national procedural law, such as that at issue in the present case, fails to satisfy the requirements of Community law. The Commission notes, however, that the final judgments, handed down by national courts, on which Olimpiclub relies in the present case concern tax years and procedures other than those to which the forthcoming decision of the referring court would refer. On that point, the present case must also be distinguished from cases such as Eco Swiss (9) and Kapferer . (10)

29The Commission contends, moreover, that the incompatibility with Community law of a rule on res judicata as interpreted by the referring court, under which judgments are binding across different fiscal years, is borne out by the principle, inherent in the VAT system, that each tax period gives rise to a separate tax liability.

30It therefore appears to the Commission to be unjustified – also in the light of the requirements of legal certainty and the principle of the effectiveness of Community law, but account being taken of the importance attaching, in general, to the principle of res judicata – that a national court should be barred from examining, for the purposes of the application of VAT, whether abusive practice has taken place, simply because an ‘external’ final judgment has made a finding on that issue with regard to a different tax period.

31The Italian Government essentially shares the view that that understanding of the principle of res judicata is disproportionate and goes beyond what may be required under Community law. That principle, as fundamental as it may be, must be reconciled with the equally fundamental rule prohibiting abuse of rights in matters of taxation. As appears clearly from the order for reference, it is rather obvious that such an abuse occurred in the present case.

32The Italian Government observes that with regard to the subject-matter of the case before the referring court – that is to say, in relation to the tax periods from 1988 to 1991 – no judicial decision has actually been taken yet. In those circumstances, it must remain possible for the referring court to examine the question of abusive practice.

33By contrast, Olimpiclub maintains that Article 2909 of the Italian Civil Code, as interpreted by the referring court, is not contrary to Community law. Setting out the differences between the present case and the various judgments of the Court cited in the order for reference, it argues that that view is not called into question by those judgments. It emphasises, furthermore, the fundamental importance of the principle of legal certainty – and the principle of res judicata – both in the national and the Community legal orders.

34The Slovakian Government essentially shares the view taken by Olimpiclub, stressing the central role of the principle of res judicata , compliance with which is in the general interest. Rather, the present case should be decided on the basis of the Kühne & Heitz (11) and Eco Swiss (12) line of authority. Although that principle is not absolute, the strict conditions for its disapplication, as set out in Lucchini , (13) are not satisfied in the present case. It is ultimately for the national courts to decide whether two cases are identical or not.

B – Appraisal

35In order to place the issues raised by this case in their broader context, it should be remembered first of all that the task of implementing and enforcing Community law – save where specifically entrusted to Community institutions – falls primarily to the national administrative and judicial authorities of the Member States (14) which are under a duty, pursuant to Article 10 EC, to take all appropriate measures, whether general or particular, to ensure fulfilment of the obligations arising under Community law.

36In the absence of specific provisions laid down by Community law, the Member States, when implementing Community law, act in principle in accordance with the procedural and substantive rules of their own law. Thus, the Court has consistently held that, in the absence of Community legislation, it is for the internal legal order of each Member State to designate the courts and tribunals having jurisdiction and to lay down the detailed procedural rules governing actions for safeguarding rights which individuals derive from the direct effect of Community law. (15)

37It can therefore be said that the rights and obligations stemming from the sources of Community law flow as a rule through the institutional and procedural ‘channels’ provided for under the various national legal orders.

38That national framework of the application of Community law must, however, comply with certain requirements under Community law which are designed to ensure its full application.

39Thus, the Court has consistently held that where Member States lay down, in accordance with what has been termed their procedural autonomy, the procedural rules for proceedings designed to ensure protection of the rights which individuals acquire through the direct effect of Community law, Member States must ensure that such rules are not less favourable than those governing similar domestic actions (principle of equivalence) and that they are not framed in such a way as to make it excessively difficult or impossible in practice to exercise the rights conferred by Community law (principle of effectiveness). (16)

40Apart from those constraints on national procedural law which the Court has formulated with regard to the principle of procedural autonomy, a number of obligations regarding the application of Community law by the Member States flow directly – and ‘objectively’, that is to say, quite independently of a context characterised by the ‘assertion of Community rights by individuals’ – from the principle of the primacy of Community law and the duty to secure its full effectiveness.

41As is well known, according to the core of those principles, any provision of domestic law, be it substantive or procedural in nature, must in principle give way to provisions of Community law with which it conflicts. (17)

42The Court has specified, as regards the obligations entailed by the principle of the primacy of Community law, that it is both for the national administrative bodies and for all the courts to ensure observance of the rules of Community law within their respective spheres of competence and, if necessary, to refuse of their own motion to apply any national rule which is an obstacle to the full effectiveness of Community law. (18)

43It is that obligation, incumbent on the national courts, to uphold the primacy of Community law and to ensure its full effectiveness – or, to put it more generally, their duty to defend the rule of law in the Community – which is liable to be affected by a domestic rule such as that at issue here, which seeks to lay down the principle of res judicata, in so far as that rule makes it impossible for the national courts to apply a Community rule correctly. Accordingly, it is by reference to that obligation that the rule of national law should be assessed. (19)

44In that regard, it should be noted, first, that the Court has repeatedly underlined that rules conferring finality on judicial or administrative decisions contribute to legal certainty, which is a fundamental principle of Community law. (20)

45In the light of that principle, the Court has – more specifically, in Eco Swiss , Köbler and Kapferer , which concerned the finality of judicial decisions and, as regards Eco Swiss , the finality of an arbitration award – acknowledged the importance, both for the Community legal order and the national legal systems, of the principle of res judicata . It has recognised that in order to ensure both stability of the law and legal relations and the sound administration of justice, it is important that judicial decisions which have become definitive after all legal remedies have been exhausted or after expiry of the time-limits provided for in that connection can no longer be called into question. (21)

46As Olimpiclub and the Slovakian Government have emphasised, it appears from Eco Swiss and Kapferer , in particular, that Community law does not therefore, in principle, require a national court to disapply domestic rules of procedure conferring finality on a decision, even if to do so would enable it to remedy an infringement of Community law inherent in that decision. (22)

47It is, none the less, also clear from the case-law of the Court that the principle of legal certainty – and the finality of decisions, which flows from that principle – is not absolute in the sense that it prevails in every situation: rather, it must be reconciled with other values worthy of protection, such as the principles of legality and the primacy of Community law, and the principle of effectiveness. (23)

48Consequently, in so far as national rules conferring finality on decisions create an obstacle to those principles, national courts – and, as the case may be, administrative bodies – may, as can be seen from the case-law of the Court, be required in specific circumstances not to apply those rules. (24)

49Thus, the Court held in Kühne & Heitz that the administrative body responsible for the adoption of an administrative decision is under an obligation, in accordance with the principle of cooperation arising from Article 10 EC, to review and possibly to reopen that decision, if four specific conditions are satisfied. (25)

50It is apparent from the importance attached to the specific circumstances of the case in Kühne & Heitz , (26) as well as from the subsequent i-21 Germany and Arcor case, which the Court distinguished from Kühne & Heitz by reference to those circumstances, (27) that rules of national law which, in the interests of legal certainty, confer finality on decisions can only exceptionally and in accordance with very narrow conditions be called into question in the light of the force and the effect of Community law.

51It should be noted next that, in Kapferer , the Court neither confirmed nor excluded that the principles laid down in Kühne & Heitz – which concerned the obligation imposed on an administrative body to review a final administrative decision which was contrary to Community law – could be transposed into a context, like that of Kapferer , relating to a judicial decision: the Court confined itself to the finding that, in any event, one of the conditions laid down in Kühne & Heitz was not satisfied. (28)

52Finally, however, in Lucchini , the Court held, referring to the duty of the national courts to give full effect to the provisions of Community law and to its primacy, that Community law precludes the application of a provision of national law – the same as that at issue in the present case – which seeks to lay down the principle of res judicata , in so far as the application of that provision prevents the recovery of State aid granted in breach of Community law which has been found to be incompatible with the common market by a decision of the Commission of the European Communities which has become final. (29)

53The factor which the Court seems, in essence, to have considered decisive in that case is that, by making the disputed ruling that Lucchini was entitled to State aid, when this had already been declared incompatible with the common market by decision of the Commission, the national court had exceeded its jurisdiction as delimited by Community law, in that the assessment of the compatibility of State aid measures with the common market falls, as the Court stressed, within the exclusive competence of the Commission, subject to review by the Community judicature. (30)

54The approach taken by the Court in that line of cases concerning the obligation to review or reopen final decisions which are contrary to Community law is certainly characterised by its focus on the circumstances of the individual case. Ultimately, however, each of those judgments reflects a balance that had to be struck, in the particular factual and legal circumstances of the case, between legal certainty, which the finality of decisions is intended to serve, and the requirements of Community legality. (31)

55Accordingly, I do not share the view suggested by the referring court that the line of cases outlined above reveals a general trend in the case-law of the Court towards eroding or watering down the principle of res judicata .

56In order to assess, in the light of the foregoing considerations, the question whether Community law requires the referring court in the present case not to apply the rule of res judicata , within the meaning described by that court, the context in which that issue has been raised should be considered in greater detail.

57In that regard, it should be noted that the referring court apparently entertains doubts as to the correctness of the finding of the lower court – appealed before it on a point of law – to the effect that the contractual mechanism chosen by Olimpiclub, namely the contratto di commodato of 27 December 1985, was not abusive and did not therefore constitute an illicit transaction for the purposes of the levying of VAT.

58Although, as the Commission has observed, the referring court has not identified in detail the elements on which its doubts as to the correctness of that assessment are founded, it nevertheless emerges from the order for reference that the referring court suspects that that assessment is not in compliance with the concept of the abuse of rights in the field of VAT as laid down in the case-law of the Court. In that regard, the referring court made reference to Halifax , (32) as well as to Part Service , (33) which was still pending before the Court at the time when the present reference was made. In those cases, the Court set out the principle of the prohibition of abuse of rights under the Sixth Directive (34) and gave guidance as to the conditions under which transactions can be found to constitute abusive practice for the purposes of the application of VAT.

59The referring court is thus concerned to ensure the correct application in the main proceedings of the Community rule prohibiting abusive practice in the sphere of VAT, but sees itself prevented from doing so by operation of the principle of res judicata under Italian law. By dint of that principle, the referring court is compelled to accept the finding, set out in final judgments rendered by another court and relating to different tax periods, that the transaction at issue before it does not constitute abusive practice – notwithstanding the fact that, in the view of the referring court, that finding is incorrect.

60Indeed, as the parties to the present proceedings have underlined, the circumstances of the present case bear little resemblance to those underlying Lucchini . (35) In the present context, the referring court has drawn particular attention to the fact that the dispute is in the field of VAT, that is to say, a field which is administered by the national fiscal authorities and courts and does not involve the exercise of an exclusive Community competence.

61To my mind, however, the Lucchini judgment is not characterised by ‘singularity’, in the sense that Community law can preclude the application of national concepts of the res judicata principle only in cases where an exclusive competence of the Commission is involved, as in matters of State aid.

62Two observations can be made in this connection. First, it should be borne in mind that the requirements of primacy and effectiveness apply across the board to the provisions of Community law, including those of the Sixth Directive, it being immaterial for those purposes whether provisions result from the exercise of an exclusive competence by the Commission, such as the decision in Lucchini (36) declaring State aid incompatible with the common market.

63Secondly, it is arguable that whenever an exclusive competence of the Commission is involved, the breach of a rule of Community law, or its incorrect application, is closely related to a failure to respect the distribution of competences as between the Member States and the Community. In other words, if, for instance, a national court takes a decision which is contrary to a Community regulation or directive, it is in fact substituting, to that extent, its own decision for that already taken by the competent Community institutions and reflected in the Community provisions thus breached. In a sense, therefore, where the application of a provision of Community law is frustrated in a Member State, a twofold issue always arises, however marginally: that of the demarcation of the Community legal order from the national legal order, and of the jurisdiction of the national courts in respect of those systems.

64The fact remains, on the other hand, that where, as in Lucchini , the decision of the national court interferes in an area which is entirely within the exclusive competence of the Commission and where, accordingly, that court clearly has no jurisdiction at all, the distribution of powers between the Community and the Member States is directly called into question and the breach of Community law by the judgment concerned is particularly flagrant. Consequently, in view, in essence, of the flagrant infringements of Community law on which the judgment at issue in Lucchini was based, its authority of res judicata had to yield to the requirements relating to the primacy and effectiveness of Community law.

65By contrast, in cases concerning areas such as that of the Community system of VAT, which is only partially harmonised, (37) the distinction between the sphere of Community law and that of national law – hence the delimitation of the jurisdiction of the national court – may be more subtle.

66Thus, not every mistake made by a national court in determining the existence of abusive practice for purposes of VAT taxation would be a concern of Community legality: for example, if that determination is vitiated by an erroneous assessment of the evidence, rather than by failure to apply the correct concept of abusive practice as defined by the case-law of the Court.

67That said, the perspective from which the present case should be approached is different again. The key factor – which, in my view, militates in favour of an affirmative answer to the question referred – is to be found in the specific, and to my mind rather unorthodox, scope of the principle of res judicata as applicable in the main proceedings and as it falls to be assessed here.

68As commonly understood, the authority of res judicata attaching to a judgment prevents the same matter or dispute – defined by reference to the subject-matter, the legal basis and the parties to the dispute – from being re-litigated in subsequent proceedings. The bringing of such identical proceedings would normally lead to discontinuance for lack of admissibility.

69In the situation at issue in the present case, however, the judgments which have acquired the force of res judicata were handed down in separate proceedings concerning the levying of VAT, the adjustment notices for which were issued in the tax years 1987 and 1992, whereas the tax years at issue in the main proceedings are the years from 1988 to 1991. By the same token, while there are final decisions as regards the levying of VAT in 1987 and 1992, the tax disputes at issue in the main proceedings are still pending.

70Thus, although the dispute before the referring court overlaps in several respects with the tax disputes which were settled in the two aforementioned final judgments, it must therefore be regarded, in so far as it relates to different taxation periods, as being essentially different as regards its subject-matter.

71Accordingly, as appears from the order for reference, the referring court is not planning to dismiss the proceedings as a whole as inadmissible. Rather, however, by operation of the principle of res judicata (as applicable in the main proceedings), it considers itself bound in respect of certain aspects of the final judgments concerned, namely as regards the assessment of the contract of 27 December 1985, with the effect that it is prevented, in the proceedings before it, from determining whether that contract constitutes abusive practice as defined under Community law.

72In that light, it should be noted, first, that considerations of legal certainty arise in those circumstances only in relation to a certain part of the findings contained in the judgments which have acquired the authority of res judicata , not in relation to those judgments as a whole.

73Secondly, the circumstances of the case before the referring court differ from those which gave rise to Eco Swiss (38) or Kapferer (39) – relied upon by Olimpiclub – in which the Court had to decide whether a decision which has acquired the authority of res judicata has to be set aside or reviewed if it is contrary to Community law. In the present case, by contrast, the final judgments concerned, which were handed down in relation to other tax years, will not be called into question as such by the decision which the referring court is going to take in the case before it on the payment of VAT in the tax years at issue.

74Viewed in that light, the present situation is comparable rather with that in Köbler , in which the Court dismissed the argument, based on res judicata , against the recognition of the principle of State liability for a decision of a court adjudicating at last instance, on the grounds that that recognition does not in itself have the consequence of calling in question that decision as res judicata . (40)

75In the circumstances of the present case, there are therefore in my opinion no substantial interests relating to legal certainty at stake which would outweigh the obligation incumbent on the referring court to apply and give full effectiveness to Community law, in this case to the prohibition of abusive practice in the field of VAT. It must therefore be concluded that Community law precludes the application of a provision laying down the principle of res judicata with the scope and effects at issue in the present case.

76In view of all the foregoing, the question referred should be answered to the effect that Community law precludes the application of a provision of national law, such as Article 2909 of the Italian Civil Code, which seeks to lay down the principle of res judicata, in so far as the application of that provision, as interpreted by the national courts, prevents a national court, in a dispute such as that before the referring court on the payment of VAT, from determining correctly and in compliance with Community law the existence of abusive practice, where a decision on that issue is already contained in a final judgment drawn up by another court in relation to a different tax period.

V – Conclusion

Conclusion

77I therefore propose that the Court answer the question referred as follows:

– Community law precludes the application of a provision of national law, such as Article 2909 of the Codice Civile (Italian Civil Code), which seeks to lay down the principle of res judicata, in so far as the application of that provision, as interpreted by the national courts, prevents a national court, in a dispute such as that before the referring court on the payment of VAT, from determining correctly and in compliance with Community law the existence of an abusive practice, where a decision on that issue is already contained in a final judgment drawn up by another court in relation to a different tax period.

(1) .

(2) – Case C‑119/05 [2007] ECR I‑6199.

(3) – The Corte suprema di cassazione makes reference to its Judgments Nos 13919/06, 16258/07 and 25681/06.

(4) – Reference is made in this context, in particular, to Case C‑255/02 Halifax [2006] ECR I‑1609, and Case C‑425/06 Part Service [2008] ECR I‑897.

(5) – It refers in that regard, in particular, to Case C‑312/93 Peterbroeck [1995] ECR I‑4599; Joined Cases C‑430/93 and C‑431/93 Van Schijndel [1995] ECR I‑4705; and Case C‑327/00 Santex [2003] ECR I‑1877.

(6) – Cited in footnote 2.

(7) – Reference is made in this context, in particular, to Case C‑126/97 Eco Swiss [1999] ECR I‑3055; Case C‑118/00 Larsy [2001] ECR I‑5063; Case C‑201/02 Wells [2004] ECR I‑723; and Case C‑453/00 Kühne & Heitz [2004] ECR I‑837.

(8) – Cited in footnote 2.

(9) – Cited in footnote 7.

(10) – Case C‑234/04 [2006] ECR I‑2585.

(11) – Cited in footnote 7.

(12) – Cited in footnote 7.

(13) – Cited in footnote 2.

(14) – To that effect, see, for example, Case C‑476/93 P Nutral v Commission [1995] ECR I‑4125, paragraph 14.

(15) – See to that effect, in particular, Joined Cases 205/82 to 215/82 Deutsche Milchkontor and Others [1983] ECR 2633, paragraph 17; Case 33/76 Rewe - Zentralfinanz and Rewe-Zentral [1976] ECR 1989, paragraph 5; and Peterbroeck , cited in footnote 5, paragraph 12.

(16) – To that effect, see, inter alia, Kapferer , cited in footnote 10, paragraph 22; Wells , cited in footnote 7, paragraph 67; and Case C‑78/98 Preston and Others [2000] ECR I‑3201, paragraph 31.

(17) – See already Case 6/64 Costa v ENEL [1964] ECR 585. It should be noted that the resolution of a conflict of norms on the basis of that principle may generally prove to be less straightforward in cases where the application of Community law is indirectly hampered by the national procedural and institutional framework than in cases where, for example, Community law collides directly with a substantive rule of national law. To take up my earlier metaphor, the assessment of the question whether the domestic procedural and institutional ‘channels’ through which Community law must operate are ‘broad enough’ – in the sense that the Community rule at issue can be effectively applied – is gradational in nature and actually requires a balance to be struck between, on the one hand, the interest in upholding the integrity of the domestic rules at issue and, on the other, the Community requirements as to the primacy and full effectiveness of Community law.

(18) – See, to that effect, inter alia, Case 106/77 Simmenthal [1978] ECR 629, paragraphs 21 to 24; Case C‑213/89 Factortame and Others [1990] ECR I‑2433, paragraphs 19 to 21; as well as Larsy , cited in footnote 7, paragraphs 51 and 52; Kühne & Heitz , cited in footnote 7, paragraph 20; and Lucchini , cited in footnote 2, paragraph 61.

(19) – For a similar approach, see the Opinions of Advocate General Léger in Kühne & Heitz , cited in footnote 7, in particular points 45, 58 and 75, and of Advocate General Ruiz-Jarabo Colomer in Joined Cases C‑392/04 and C‑422/04 i-21 Germany and Arcor [2006] ECR I‑8559, point 69.

(20) – To that effect, see, inter alia, Kühne & Heitz , cited in footnote 7, paragraph 24; Eco Swiss , cited in footnote 7, paragraph 46; and Case C‑2/06 Willy Kempter [2008] ECR I‑411, paragraph 37.

(21) – See, to that effect, Eco Swiss , cited in footnote 7, paragraphs 46 and 47; Case C‑224/01 Köbler [2003] ECR I‑10239, paragraph 38; and Kapferer , cited in footnote 10, paragraph 20; see also, with regard to administrative decisions, i-21 Germany and Arcor , cited in footnote 19, paragraph 51, and Kühne & Heitz , cited in footnote 7, paragraph 24.

(22) – See, to that effect, Kapferer , cited in footnote 10, paragraph 21, and Eco Swiss , cited in footnote 7, paragraphs 46 and 47.

(23) – See, to that effect, Joined Cases 42/59 and 49/59 SNUPAT v High Authority [1961] ECR 53; i-21 Germany and Arcor , cited in footnote 19, paragraph 52; and Advocate General Ruiz-Jarabo Colomer in the same case, at point 76.

(24) – See in that regard Kühne & Heitz , cited in footnote 7, paragraph 27; i-21 Germany and Arcor , cited in footnote 19, paragraph 52; Willy Kempter , cited in footnote 20, paragraph 38; and Lucchini , cited in footnote 2, paragraph 63.

(25) – See paragraphs 26 and 27 of Kühne & Heitz : first, the administrative body must, under national law, have the power to reopen that decision; secondly, the administrative decision in question must have become final as a result of a judgment of a national court ruling at final instance; thirdly, that judgment must, in the light of a decision given by the Court of Justice subsequent to it, be based on a misinterpretation of Community law which was adopted without a question being referred to the Court for a preliminary ruling in the circumstances set out in the third paragraph of Article 234 EC; fourthly, the person concerned must have complained to the administrative body immediately after becoming aware of that decision of the Court.

(26) – See paragraphs 26 and 28 of the judgment, cited in footnote 7.

(27) – See paragraphs 52 to 54 of the judgment in i-21 Germany and Arcor .

(28) – Namely, the condition that the body concerned must be empowered under national law to reopen the decision; see Kapferer , cited in footnote 10, paragraph 23.

(29) – See Lucchini , cited in footnote 2, paragraphs 60 to 63.

(30) – See to that effect, in particular, paragraphs 52, 59 and 62 of the judgment.

(31) – Taking account of factors like the specific procedural framework in which the court or administrative body operates, whether or how far the courts or administrations discharged their duties as regards the application and enforcement of Community law and whether the parties made use of the means available to them to assert their rights.

(32) – Cited in footnote 4.

(33) – Cited in footnote 4.

(34) – 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 95/7/EC of 10 April 1995 (OJ 1995 L 102, p. 18) (‘the Sixth Directive’).

(35) – Cited in footnote 2.

(36) – Cited in footnote 2.

(37) – Case C‑462/05 Commission v Portugal [2008] ECR I‑0000, paragraph 51.

(38) – Cited in footnote 7.

(39) – Cited in footnote 10.

(40) – Cited in footnote 21, paragraph 39. The Court noted in that context that proceedings seeking to render the State liable do not have the same purpose and do not necessarily involve the same parties as the proceedings resulting in the decision which has acquired the authority of res judicata .