C-203/87 Commission v Italy

Judgment of the Court of 21 February 1989. - Commission of the European Communities v Italian Republic. - Action for failure to fulfil obligations - Temporary derogation from VAT arrangements. - Case 203/87. European Court reports 1989 Page 00371

Summary Parties Grounds Decision on costs Operative part

++++

Tax provisions - Harmonization of legislation - Turnover taxes - Common system of value-added tax - Exemptions provided for in the Sixth Directive - Exhaustive - Unilateral introduction of other exemptions by Member States - Prohibition - Justification - Absence of effect on Community' s own resources - Inadmissible

( Council Directive 77/388, Art . 13 et seq .)

The provisions of Title X of the Sixth Directive ( 77/388/EEC ) relating to exemptions from value-added tax are exhaustive . They are aimed not only at ensuring that the Community' s own resources are collected in a uniform manner in all the Member States, but also at helping to achieve the overall objective of the directive, which is to provide for a uniform basis of assessment of value-added tax so that a common market permitting fair competition and resembling a real internal market may ultimately be achieved . Therefore, exemptions not provided for in Title X may not be decided upon unilaterally by Member States, even if they are organized so as to avoid any impact on own resources .

In Case 203/87

Commission of the European Communities, represented by S . Fabro, Legal Adviser, a member of its Legal Department, acting as Agent, with an address for service in Luxembourg at the office of Georgios Kremlis, also a member of its Legal Department, Wagner Centre, Kirchberg,

applicant,

v

Italian Republic, represented by Luigi Ferrari Bravo, Head of the Department for Contentious Diplomatic Affairs in the Ministry of Foreign Affairs, acting as Agent, assisted by P . G . Ferri, avvocato dello Stato, with an address for service in Luxembourg at the Italian Embassy, 5 rue Marie-Adélaïde,

defendant,

APPLICATION for a declaration that the Italian Republic infringed Article 2 of the Sixth Council Directive ( 77/388/EEC ) of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes - Common system of value-added tax : uniform basis of assessment ( Official Journal 1977, L 145, p . 1 ),

THE COURT

composed of : O . Due, President, T . F . O' Higgins and F . Grévisse ( Presidents of Chambers ), G . F . Mancini, C . N . Kakouris, F . A . Schockweiler, J . C . Moitinho de Almeida, M . Díez de Velasco and M . Zuleeg, Judges,

Advocate General : J . Mischo

Registrar : B . Pastor, Administrator

having regard to the Report for the Hearing and further to the hearing on 24 November 1988,

after hearing the Opinion of the Advocate General delivered at the sitting on 2 December 1988,

gives the following

Judgment

Grounds

1By application lodged at the Court Registry on 3 July 1987, the Commission of the European Communities brought an action before the Court under Article 169 of the EEC Treaty for a declaration that by granting, in the years subsequent to 31 December 1983, an exemption from value-added tax, with reimbursement of the tax paid at the preceding stage, in respect of certain transactions carried out for earthquake victims in Campania and Basilicata, the Italian Republic infringed Article 2 of the Sixth Council Directive ( 77/388/EEC ) of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes - Common system of value-added tax : uniform basis of assessment ( Official Journal 1977, L 145, p . 1 ), hereinafter referred to as "the Sixth Directive ".

2Article 2 of the Sixth Directive defines the transactions which are to be subject to value-added tax as "the supply of goods or services effected for consideration within the territory of the country by a taxable person acting as such" and "the importation of goods ". Title X of the directive provides for exemptions for certain categories of such transactions .

3On 3 November 1981 the Council adopted, at the Italian Government' s request, Decision 81/890/EEC authorizing the Italian Republic to derogate temporarily from the value-added tax arrangements in the context of aid to earthquake victims in southern Italy ( Official Journal 1981, L 322, p . 40 ).

4By that decision, the Italian Republic was authorized, until 31 December 1981, to exempt, with reimbursement of the tax paid at the preceding stage, certain transactions listed in the annex to the decision which corresponded to the transactions covered by the Italian laws and decree-laws adopted following the earthquake . The annex to the decision also set out the arrangements for exempting those transactions . Under the decision, the Italian Republic was to adopt such provisions as were necessary to ensure that taxable persons furnished the information required for determining the Community' s own resources in respect of those transactions .

5By Decisions 82/424/EEC of 21 June 1982 ( Official Journal 1982, L 184, p . 26 ) and 84/87/EEC of 6 February 1984 ( Official Journal 1984, L 40, p . 30 ), the Council extended the authorization until 31 December 1983 . However, by annual decree-laws the Italian Republic maintained the exemption in force until 31 December 1988, with reimbursement of the tax paid at the preceding stage, while continuing to declare the Community' s own resources in respect of the exempted transactions .

6The Commission considered that it was contrary to the provisions of the Sixth Directive to maintain the exemption in force without the Council' s authorization, and instituted proceedings under Article 169 of the Treaty .

7Reference is made to the Report for the Hearing for a fuller account of the background to the dispute, the course of the procedure and the submissions and arguments of the parties, which are mentioned or discussed hereinafter only in so far as is necessary for the reasoning of the Court .

8The Italian Republic claims that the exemption of certain transactions following a natural disaster does not fall within the scope of the Sixth Directive and, therefore, that the provisions of Title X of that directive relating to exemptions are not exhaustive in that respect . It adds that the aim of the provisions relating to exemptions is, according to the 11th recital in the preamble to the directive, to enable the Community' s own resources to be collected in a uniform manner in all the Member States . However, in accordance with the Council' s decisions, the exemption in question was organized so as to avoid any impact on own resources . Finally, it claims that the Council, by authorizing the exemption, acknowledged that it was not contrary to the Sixth Directive . The Italian Republic considers that, inasmuch as it complied fully, throughout the period, with the arrangements laid down in the annexes to the decisions, it did not infringe the provisions of the directive .

9Those arguments cannot be accepted . The provisions of Title X of the Sixth Directive relating to exemptions are aimed not only at ensuring that the Community' s own resources are collected in a uniform manner in all the Member States, but also at helping to achieve the overall objective of the directive which is to provide for a uniform basis of assessment of VAT so that a common market permitting fair competition and resembling a real internal market may ultimately be achieved, as is confirmed in particular by the fourth recital in the preamble to the directive . It follows that the provisions of Title X are exhaustive .

10In so far as an exemption of the type in question is not provided for in Title X, it constitutes a derogation from the general rule set out in Article 2 of the directive . Such a derogation may not be decided upon unilaterally by a Member State . By its decisions, the Council authorized the derogation in question only temporarily, and deliberately prescribed a specific date at which the authorization was to come to an end . Consequently, by extending the exemption beyond that date without the authorization of the Council, the Italian Republic infringed Article 2 of the directive .

11It follows that by granting, for the period between 1 January 1984 and 31 December 1988, an exemption from value-added tax with reimbursement of the tax paid at the preceding stage in respect of certain transactions carried out for earthquake victims in Campania and Basilicata, the Italian Republic infringed Article 2 of the Sixth Council Directive ( 77/388/EEC ) of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes - Common system of value-added tax : uniform basis of assessment .

Costs

Costs

12Under Article 69(2 ) of the Rules of Procedure, the unsuccessful party is to be ordered to pay the costs . Since the defendant has failed in its submissions, it must be ordered to pay the costs .

Operative part

On those grounds,

THE COURT

hereby :

¹ Declares that by granting, for the period between 1 January 1984 and 31 December 1988, an exemption from value-added tax with reimbursement of the tax paid at the preceding stage in respect of certain transactions carried out for earthquake victims in Campania and Basilicata, the Italian Republic infringed Article 2 of the Sixth Council Directive ( 77/388/EEC ) of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes - Common system of value-added tax : uniform basis of assessment;

Signatures

² Orders the Italian Republic to pay the costs .

OPINION OF MR ADVOCATE GENERAL MISCHO delivered on 2 December 1988 * Mr President, Members of the Court,

1On 3 November 1981 the Council adopted, at the Italian Government's request, Decision 81/890/EEC authorizing the Italian Republic to derogate temporarily from the value-added tax arrangements in the context of aid to earthquake victims in southern Italy (Official Journal 1981, L 322, p. 40).

2Article 1 of that decision authorized the Italian Republic until 31 December 1981, to exempt, with refund of the tax paid at the preceding stage, the transactions which are listed, together with the arrangements for exempting them, in the annex to the decision. The list covers various transactions for the supply of goods and services which, as such, unquestionably fall within the scope of the Sixth Council Directive (77/388) (Official Journal 1977, L 145, p. 1) as defined in Article 2 thereof, which provides that 'the following shall be subject to value-added tax:

(1) the supply of goods or services effected for consideration within the territory of the country by a taxable person acting as such,

* Original language. French

(2) the importation of goods'.

3The derogation was extended until 31 December 1982 by Council Decision 82/424/EEC of 21 January 1982 (Official Journal 1981, L 184, p. 26) and until 31 December 1983 by Council Decision 84/87/EEC of 6 February 1984 (Official Journal 1984, L 40, p. 30). However, the Italian Republic maintained the derogation in force by means of a series of decree-laws adopted in 1984, 1985 and 1986 and, as it informed the Court in answer to a question, the exemption is to remain in force until 31 December 1988. The Commission therefore brought an action against the Italian Republic under Article 169 of the Treaty for failure to fulfil its obligations, claiming that it had infringed Article 2 of the Sixth VAT Directive.

4The Commission argues that for the Italian Republic to exempt from tax transactions which, according to the wording of the directive, must be subject to value-added tax constitutes a derogation which is devoid of any legal basis. In its view, it is possible to derogate from the Sixth Directive only in the cases provided for in Title X thereof or by virtue of an ad hoc authorization granted by the Council. There ceased to be any such authorization as of 31 December 1983 and the exemption maintained in force by Italy until 31 December 1988 is not covered by Title X. Consequently, there is a manifest and unquestionable infringement of the Sixth Directive and, in particular, of Article 2 thereof.

5The Italian Republic raises various arguments relating to the nature and the objectives of the derogations from the Sixth Directive.

6It argues in the first place that it cannot be considered, as the Commission claims, that Title X is exhaustive. In other words, derogations from the directive are possible despite the fact that they are not referred to in Articles 13 to 16, which make up Title X. The fact that such derogations — like those at issue in this case — are not mentioned therein simply indicates that they fall outside the subject-matter covered by the directive itself.

7I cannot agree with that view, which, moreover, is contradicted by the defendant's conduct in so far as the defendant itself asked the Council for authorization to derogate from the directive. It therefore certainly considered that the measures which it intended to take fell within the field covered by the directive.

8Furthermore, the exhaustive nature of Title X of the directive also emerges clearly from the explanatory memorandum of the proposal for a sixth directive submitted to the Council by the Commission on 29 June 1973. It states that ' ... the common rules must be arrived at by determining the area of application for value-added tax which will be identical under each national law, particularly as regards... which transactions are taxable or exempt'. 1 The Commission adds in its comments on Title X that whereas 'Article 10 (3) of the Second Directive of 11 April 1967 left the Member States completely free... to provide for whatever exemptions they thought fit. . . the purpose of the present directive, dictated by

376 the need to ensure equality of treatment as between the various Member States as regards collection of the Community's own resources, is that there should be uniformity as to the transactions which are taxable. This necessarily implies uniform rules as to exemptions'. 2

9It is patent that that objective of uniformity would not be achieved if the provisions of Title X were not regarded as exhaustive, and if as a result the Member States were free to grant such exemptions as they thought fit.

10However, the Italian Republic further argues, by reference to the 11th recital in the preamble to the Sixth Directive, that the essential objective of the directive is precisely that of securing the collection of the Community's own resources in a uniform manner. It maintains that the measures granting exemption taken by Italy fully respect that objective since they were organized, in accordance with the conditions laid down by the Council, in such a way as to eliminate any impact on own resources.

11It seems to me that two comments are called for in this connection. In any event, the Italian Republic is not complying with all the conditions laid down by the Council, since it has continued to grant the exemptions in question beyond the time-limit set by the latter.

12Secondly, the objective of uniformity with regard to the collection of own resources is indeed important, but it is not the only aim of the directive, as witness in particular the fourth recital in the preamble thereto, which refers to the ultimate achievement of a common market permitting fair competition and resembling a real internal market. Moreover, the Court has recently referred to this. 3

13The Italian Republic also claims that the exceptional, temporary conditions which determined the adoption of the Council's decision to grant a derogation still obtain. For its part, the Commission considers that three years after the earthquake most of the reconstruction work must have been completed and hence there is no longer any justification for extending the exemptions. I consider that in taking that view the Commission has not made a manifest error of assessment.

14Lastly, the Italian Republic argues that logically the Commission should have claimed that it has infringed the more recent Council decision and not Article 2 of the Sixth Directive. For my part, I certainly agree that the Commission's argument that since there is no longer any legal basis for the derogation granted to the Italian Republic, the latter is once again subject to the ordinary legal rules applicable in this area, that is to say Directive 77/388. And it is indeed Article 2 of that directive which lays down the principle that all supplies of goods or services and imports of goods are to be subject to value-added tax.

15The Italian Republic cannot therefore be entitled to exempt transactions which come under the directive by virtue of Article 2 thereof and which are not included in the exhaustive list set out in Title X by claiming that among the various objectives pursued by the directive there is one that its conduct does not undermine.

16Lastly, at the hearing the Italian Republic further argued that the tax exemptions maintained in force were covered by Article 92 (2) (b) of the EEC Treaty, which provides that 'the following shall be compatible with the common market... aid to make good the damage caused by natural disasters or exceptional occurrences'. However, under Article 42 (2) of the Court's Rules of Procedure no fresh issue may be raised in the course of proceedings unless it is based on matters of law or of fact which come to light in the course of the written procedure. That is not the case here.

17For all those reasons I propose that the Court should uphold the Commission's application and:

(i) declare that, by granting between 1984 and 1988 inclusive an exemption from value-added tax, with reimbursement of the tax paid at the preceding stage, in respect of certain transactions carried out for earthquake victims in Campania and Basilicata, the Italian Republic has infringed the provisions of Article 2 of Council Directive 77/388/EEC of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes — Common system of value-added tax: uniform basis of assessment (Sixth VAT Directive);

(ii) order the Italian Republic to pay the costs.

Notes

(1) See Bulletin of the European Communities — Supplement

(11) /73,11. 7.

(2) Op. cit., p. 15.

(3) Sec in particular lhe judgments of 12 July 1988 in Joined Cases 138 and 139/86 Direcl Cosmetici and Others [1988] LCR 3937, paragraph 23, and of 5 July 1988 in Case

(289) /86 Vereniging Happy Family v Inspecteur der Omzetbelasting [1988] ECR 3655, paragraph 16