C-234/91 Commission v Denmark

Judgment of the Court of 1 December 1993. - Commission of the European Communities v Kingdom of Denmark. - Article 33 of the Sixth VAT Directive - Turnover tax - Law relating to the labour market contribution. - Case C-234/91. European Court reports 1993 Page I-06273

Summary Parties Grounds Decision on costs Operative part

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1. Actions against Member States for failure to fulfil obligations ° Scope of the proceedings ° Determination during the pre-litigation procedure ° Subsequent enlargement ° Not permissible

(EEC Treaty, Art. 169)

2. Tax provisions ° Harmonization of laws ° Turnover taxes ° Common system of value added tax ° Prohibition on charging other national taxes in the nature of turnover taxes ° Labour market contribution introduced in Denmark ° Not permissible

(Council Directive 77/388, Art. 33)

1. The scope of an action brought under Article 169 of the Treaty is circumscribed both by the preliminary administrative procedure provided for by that article and by the form of order sought in the application. The Commission' s reasoned opinion and its application must be founded on the same grounds and pleas. In so far as a complaint was not raised in the pre-litigation procedure, it is not admissible.

2. A Member State, in this case Denmark, infringes Article 33 of the Sixth Directive (77/388), which prohibits the Member States from levying taxes, duties or charges in the nature of turnover taxes, and thereby fails to fulfil its obligations under the Treaty, in particular Article 189, if it introduces and maintains fiscal rules providing for the payment of a labour market contribution, which is a levy of a fiscal nature generally charged on the same basis of assessment as value added tax, but without complying with the Community rules applying to value added tax, in so far as the said contribution:

° is paid both on activities subject to value added tax and on other industrial or commercial activities which consist in the supply of services for consideration;

° is charged, in the case of undertakings which are taxable persons for value added tax purposes, on the same basis of assessment as that used for value added tax, in other words as a percentage of the volume of sales after deduction of purchases;

° unlike value added tax, is not paid on importation, but is charged on the full sale price of imported goods at the first sale in the Member State concerned;

° unlike value added tax, does not have to be indicated separately on invoices; and

° is charged alongside value added tax.

In Case C-234/91,

Commission of the European Communities, represented by Johannes Foens Buhl, Legal Adviser, acting as Agent, with an address for service in Luxembourg at the office of Nicola Annecchino, a member of its Legal Service, Wagner Centre, Kirchberg,

applicant,

v

Kingdom of Denmark, represented by Joergen Molde, Legal Adviser in the Ministry of Foreign Affairs, acting as Agent, with an address for service in Luxembourg at the Royal Danish Embassy, 4 Boulevard Royal,

defendant,

APPLICATION for a declaration, under the second paragraph of Article 169 of the EEC Treaty, that, by introducing and maintaining, by means of Law No 840 of 18 December 1987, as amended, the fiscal rules providing for the payment of a labour market contribution, which is a levy of a fiscal nature generally charged on the same basis of assessment as value added tax, but without complying with the Community rules applying to value added tax, the Kingdom of Denmark has infringed Article 33 of the Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes ° Common system of value added tax: uniform basis of assessment (OJ 1977 L 145, p. 1), and has therefore failed to fulfil its obligations under the EEC Treaty, in particular Article 189 thereof,

THE COURT,

composed of: O. Due, President, G.F. Mancini, J.C. Moitinho de Almeida (Presidents of Chambers), R. Joliet, F.A. Schockweiler, G.C. Rodríguez Iglesias, F. Grévisse, M. Zuleeg and J.L. Murray, Judges,

Advocate General: G. Tesauro,

Registrar: J.-G. Giraud,

having regard to the Report for the Hearing,

after hearing oral argument from the parties at the hearing on 13 July 1993, at which the Danish Government was represented by Joeogen Molde and Gregers Larsen, of the Copenhagen Bar,

after hearing the Opinion of the Advocate General at the sitting on 28 September 1993,

gives the following

Judgment

Grounds

1By application lodged at the Court Registry on 17 September 1991, the Commission of the European Communities brought an action under Article 169 of the EEC Treaty for a declaration that, by introducing and maintaining, by means of Law No 840 of 18 December 1987, as amended, the fiscal rules providing for the payment of a labour market contribution, which is a levy of a fiscal nature generally charged on the basis of the same assessment basis as value added tax (hereinafter "VAT"), but without complying with the Community rules applying to VAT, the Kingdom of Denmark had infringed Article 33 of the Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes ° Common system of value added tax: uniform basis of assessment (OJ 1977 L 145, p. 1, hereinafter "the Sixth Directive"), and consequently failed to fulfil its obligations under the EEC Treaty, in particular Article 189 thereof.

2As part of the economic policy conducted by the Danish Government with a view to relaunching the economy, Law No 840 of 18 December 1987 (Lov om arbejdsmarkedsbidrag, hereinafter "Law No 840"), which entered into force on 1 January 1988, imposed on undertakings a levy, the labour market contribution (hereinafter "the AMBI", to use the acronym habitually used in Denmark), which was intended to enable the public authorities to finance certain social expenditure previously borne by employers.

3The basis for calculating that levy, the rate of which was 2.5%, was determined differently depending on whether the undertaking was subject to VAT or completely or partially exempt from VAT. In the case of undertakings fully subject to VAT, the AMBI was calculated on the same basis as that used to assess VAT, namely on the basis of turnover (the so-called "VAT calculation method"). In the case of other undertakings, Law No 840 prescribed that calculation method in some cases and in others a second method which consisted in calculating the AMBI on the basis of the aggregate wages and salaries paid by the undertaking, plus 90% (the so-called "aggregate-wages calculation method").

4Both private individuals and the Commission contested the compatibility with Community law of the AMBI when calculated according to the VAT method.

5The Danish companies Dansk Denkavit and P. Poulsen Trading asked the customs administration to repay the contributions which they paid in 1988 and 1989. In support of their claim, they argued that the Danish law was incompatible with Article 33 of the Sixth Directive and with Article 9 et seq. and Article 95 of the EEC Treaty. That action was brought in the OEstre Landsret (Eastern Regional Court), which, by order of 20 June 1990, referred four questions to the Court for a preliminary ruling.

6In the judgment of 31 March 1992 in Case C-200/90 Dansk Denkavit [1992] ECR I-2217 the Court ruled in answer to those questions that Article 33 of the Sixth Directive precludes the introduction or maintenance of a fiscal levy which:

° is paid both on activities subject to VAT and on other industrial or commercial activities which consist in the supply of services for consideration;

° is charged, in the case of undertakings which are taxable persons for VAT purposes, on the same basis of assessment as that used for VAT, in other words as a percentage of the volume of sales after deduction of purchases;

° unlike VAT, is not paid on importation, but is charged on the full sale price of imported goods at the first sale in the Member State concerned;

° unlike VAT, does not have to be indicated separately on invoices; and

° is charged alongside VAT.

7For its part, the Commission, by letter before action dated 22 May 1989, informed the Danish Government that it considered that the AMBI was a turnover tax within the meaning of the Sixth Directive and that it was therefore contrary to Article 33 of the Sixth Directive, which prohibits the Member States from levying domestic taxes in the nature of turnover taxes.

8After the Danish Government informed it that it rejected those objections, the Commission delivered a reasoned opinion under Article 169 of the Treaty on 27 September 1990 in which it asked it to take the necessary measures to bring its legislation into line with Community law within one month of notification of the reasoned opinion.

9By letter dated 6 December 1990, the Danish Government confirmed that in its view the Commission' s objections were unfounded. It maintained that the AMBI was not a turnover tax covered by the prohibition set out in Article 33 of the Sixth Directive. Accordingly, the Law introducing that levy complied in full with the principles of the Sixth Directive and did not impede the proper application thereof.

10By application dated 12 September 1991 the Commission brought an action in the Court of Justice for a declaration that the Kingdom of Denmark had failed to fulfil its obligations under Community law.

11On 21 December 1991 the Danish legislature adopted Law No 891 repealing the Law on the Labour Market Contribution and amending the Law on Value Added Tax (Lov om ophaevelse af lov om arbejdsmarkedsbidrag og om aendring af mervaerdiafgiftsloven (momsloven) m.v., hereinafter "Law No 891") with effect from 1 January 1992. That Law completely repealed the provisions of Law No 840 which imposed the AMBI on Danish undertakings. In addition, it amended the rates of VAT in force in Denmark.

12Despite the judgment of 31 March 1992 giving a preliminary ruling, cited above, and the adoption of Law No 891 abolishing the levy at issue, the Commission considered it appropriate to maintain its application.

13In the light of the Commission' s reply, the application is to be construed as embodying two complaints.

14The first relates to the contribution calculated according to the aggregate-wages method. In this connection, the Commission argues that the action for failure to fulfil obligations continues to be relevant since it is not certain that Law No 891 abolished the AMBI where it is determined on the basis of aggregate wages and salaries.

15It is appropriate to hold in this respect, as the Danish Government argues in its rejoinder and as the Commission itself has acknowledged, that that complaint was raised in the reply and not during the pre-litigation procedure, which concentrated exclusively on the contribution calculated according to the VAT method.

16As the Court has consistently held, illustrated in particular by the judgment in Case 166/82 Commission v Italy [1984] ECR 459, paragraph 16, the scope of an action brought under Article 169 of the Treaty is delimited both by the preliminary administrative procedure provided for by that article and by the form of order sought in the application, and that the Commission' s reasoned opinion and its application must be founded on the same grounds and pleas.

17Consequently, in so far as it is directed against the levy calculated on the basis of aggregate wages and salaries, the application is inadmissible.

18The Commission' s second complaint concerns the contribution calculated according to the VAT method.

19In its defence of 4 May 1992, the Danish Government does not contest the claim that the Kingdom of Denmark infringed Community law by introducing a labour market contribution calculated according to the VAT method. However, it argued that the application for failure to fulfil obligations had lost its relevance on account of the adoption of Law No 891 and the ruling of 31 March 1992, cited above.

20For its part, the Commission objects that Law No 891, which abolished the levy, did not enter into force until 1 January 1992, that is to say after the expiry of the period of one month set in the reasoned opinion.

21It has to be held in that respect that, even though the Court' s preliminary ruling showed that the Danish law was incompatible with Community law, since the levy at issue was not abolished until after the expiry of the period indicated in the reasoned opinion, it is for the Commission alone to assess whether it is expedient to pursue its application for a declaration that the Member State in question has failed to fulfil its obligations.

22It follows from all the foregoing considerations that, by introducing and maintaining by Law No 840 of 18 December 1987, as amended, the fiscal rules providing for the payment of a contribution to support the labour market, which is a levy of a fiscal nature generally charged on the same basis of assessment as value added tax, but without complying with the Community rules applying to value added tax, the Kingdom of Denmark has infringed the provisions of Article 33 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, and has consequently failed to fulfil its obligations under the EEC Treaty, in particular Article 189 thereof.

Costs

Costs

23Under the first subparagraph of Article 69(2) of the Rules of Procedure, the unsuccessful party is to be ordered to pay the costs. However, the first subparagraph of Article 69(3) provides that the Court may order that the costs may be shared or that the parties bear their own costs.

24Since both parties were unsuccessful in respect of some of their pleas, it is appropriate to order each party to bear its own costs.

Operative part

On those grounds,

THE COURT

hereby:

1. Declares that, by introducing and maintaining by Law No 840 of 18 December 1987, as amended, the fiscal rules providing for the payment of a contribution to support the labour market, which is a levy of a fiscal nature generally charged on the same basis of assessment as value added tax, but without complying with the Community rules applying to value added tax, the Kingdom of Denmark has infringed the provisions of Article 33 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, and has consequently failed to fulfil its obligations under the EEC Treaty, in particular Article 189 thereof;

Signatures

2. Orders each of the parties to bear its own costs.

O P I N I ON OF ADVOCATE G E N E R AL TESAURO delivered on 28 September 1993 Mr President, Members of the Court,

1In these proceedings the Commission claims that a Danish tax, the labour market contribution (hereinafter 'the contribution') introduced by Law No 840 of 18 December 1987 ('Law No 840'), is incompatible with Article 33 of the Sixth Council Directive 77/338/EEC ('the Sixth Directive').> I would observe forthwith that the Court has already had occasion to give a preliminary ruling on the compatibility of Law No 840 in the judgment in Dansk Denkavit.

2Whilst I would refer to the Report for the Hearing and to the judgment in Dansk Denkavit for further particulars, I shall start by recalling the main aspects of the rules governing the tax at issue. The contribution in question, as governed by Law No 840 as amended, is imposed in principle on any commercial activity consisting in the supply of goods or services (see Article 1 of Law No 840). Saving a few exceptions, it is charged on both activities subject to VAT and to activities exempt from VAT (see Article 2 of Law No 840).

3As regards the basis of assessment of the contribution, a distinction can be made

* Original language: Italian.

between two possibilities: (a) contribution based on value added and (b) contribution based on aggregate wages and salaries.

(a) The contribution levied on value added affects both activities subject to VAT and a number of activities exempt from VAT. As regards the former, the basis of assessment of the contribution is identical to that of VAT; it is therefore charged on the difference between the value of sales and the value of purchases as they are accounted for for the purposes of charging VAT (see Article 7 of Law No 840). As regards the latter, the basis of assessment is also constituted by the value of sales less the value of purchases (see Article 8(1)(1) of Law No 840); in that case, of course, it is not possible to use VAT accounting as the basis, since the activities are not subject to VAT; however, the basic criterion remains the same, since the contribution is levied on the value added by the relevant activities.

(b)The contribution based on aggregate wages and salaries relates to a number of activities which are not subject to VAT and specifically set out in the Law for which the criterion of value added is not applicable (see Article 8(1 )(2) of Law No 840). The activities in question are chiefly activities of the financial sector. In relation to such activities, the contribution is charged on the amount of aggregate wages and salaries paid by the undertaking increased by a flat-rate 90%.

COMMISSION v DENMARK

4This action, as the Commission made clear inter alia at the hearing, is directed both against the contribution imposed on value added and against the contribution based on aggregate wages and salaries. I shall consider those two heads of the action separately.

The contribution based on value added

5In this connection, the Danish Government maintains that the action is to no purpose and hence inadmissible, since the contribution was repealed by Law No 891 of 21 December 1991 and declared incompatible with Article 33 of the Sixth Directive by the Court in the judgment giving a preliminary ruling in Dansk Denkavit.

6In that connection, as the Court has consistently held, the subject-matter of an action brought under Article 169 of the Treaty is defined by the Commission's reasoned opinion and even where the contested infringement has been brought to an end after the expiry of the period prescribed by the reasoned opinion, there remains an interest in pursuing the action. 3 In the instant case it is clear that the tax legislation at issue was not amended by the Danish legislature until after the proceedings were brought and that hence when the period prescribed by the reasoned opinion expired, the legislation in question was still in force. Consequently, from that point of view the application cannot be regarded as being to no purpose.

7As for the fact that in dealing with the request for a preliminary ruling in Dansk Denkavit the Court has already considered whether Article 33 of the Sixth Directive precludes the application of the Danish contribution charged on value added, it should be held that that has no bearing on the admissibility of these proceedings.

In the context of the system of judicial remedies created by the Treaty, references for preliminary rulings under Article 177 have completely independent and different objectives and effects by comparison with the infringement proceedings provided for in Article 169; consequently, the existence of remedies available through the national courts, in the context of which a reference for a preliminary ruling under Article 177 can be made, cannot in any way prejudice the making of the application referred to in Article 169. Subject, therefore, to the Commission's power to discontinue infringement proceedings at any time, it must be considered that the mere fact that national legislation has already been considered by the Court in proceedings brought under Article 177 is not in itself such as to render proceedings brought by the Commission under Article 169 against the same legislation to no purpose and hence inadmissible.

8Furthermore, it should also be observed that the Danish Government's objection to the effect that the Court's judgment in Dansk Denkavit makes it pointless to pursue these infringement proceedings is based on an assessment simply of the expediency of maintaining the Article 169 proceedings, which is a matter for the Commission alone to assess and docs not fall within the purview of the Court. As the Court has consistently held, under the system established by Article 169 of the Treaty, the Commission enjoys a discretionary power as to whether it will bring and pursue an action for failure to fulfil obligations and it is not for the Court to judge whether that discretion was wisely exercised. 5

9As for the substance, I note that the Danish Government acknowledges that the charge made against it is well founded. It therefore recognizes that the contribution charged on the value added by undertakings, whether or not they are taxable persons for the purposes of VAT, which was introduced by Law No 840 constitutes a turnover tax within the meaning of Article 33 of the Sixth Directive and is therefore prohibited by Community law. It is, moreover, for that reason that the Danish legislature decided to repeal the legislation at issue by adopting, albeit belatedly, Law No 891 of 21 December 1991. Furthermore, it should be stressed that in the judgment in Dansk Denkavit the Court clearly held that the contribution based on value added was in the nature of a turnover tax which was incompatible with Article 33 of the Sixth Directive.

10I therefore consider that the first head of the action is admissible and well founded.

The contribution based on aggregate wages and salaries

11As for the second head of the action, concerning the contribution based on aggregate wages and salaries (plus 90%), the Danish Government points out that the Commission did not make any complaint specifically with regard to that levy in the pre-litigation phase of the procedure. Indeed, the Government observes, on close examination objections to the contribution based on aggregate wages and salaries do not appear even in the application; it is only in the reply that the Commission, for the first time, challenges the consistency of the contribution based on aggregate wages and salaries with Article 33 of the Sixth Directive. Consequently, the complaint made with regard to that aspect of the Danish legislation at issue should be regarded as inadmissible.

12I shall say forthwith that I consider that the Danish Government's objection to that head of the action is completely justified on the following grounds.

I would recall in the first place that, according to well-known case-law, an action brought under Article 169 is inadmissible in so far as it relates to complaints not covered by the pre-litigation procedure and, likewise, a complaint raised before the Court which has not been duly set out in the application is inadmissible.

I would also point out that in a recent judgment it was specifically stated that in infringement proceedings both the complaints made against a Member State and the arguments on which they are based should be set out sufficiently clearly and precisely in order to enable the defendant Member State fully to exercise its right to defend itself and the Court to assess fully and in detail whether the complaints are well founded. According to that case-law, the Commission must indicate the specific complaints on which the Court is called upon to rule and, at the very least in summary form, the legal and factual particulars on which those complaints are based.

13In this case, it should be observed that the contribution based on aggregate wages and salaries constituted — at least in an essential respect, that of the basis of assessment — a tax which was completely different from the charge based on value added. Consequently, the Commission should have specifically challenged its legality, as it did in the case of the contribution based on value added, by specifying, as from the pre-litigation phase, the legal and factual particulars supporting its claim.

14In contrast, the Commission merely refers to the contribution based on aggregate wages and salaries in its general description of the system provided for by Law No 840 and neither in the prc-htigation phase nor in the application itself did it set out any specific complaint regarding that contribution or indicate the reasons for which it maintains that it is incompatible with Article 33 of the Sixth Directive (no such reasons, moreover, are even given in the reply). As the Danish Government rightly observes, the legal arguments set out by the Commission relate in fact only to the contribution charged on value added: the Commission analyses only the nature and lawfulness of that charge — and not the nature and lawfulness of the different contribution based on aggregate wages and salaries — in order to reach the conclusion that it is a turnover tax prohibited by Article 33 of the Sixth Directive.

15Furthermore, it emerged unambiguously from the arguments put forward at the hearing that neither in the form of order sought nor in the part of the application dealing with the law — and not even in the documents of the pre-litigation phase — did the Commission actually set out any complaints about the contribution based on aggregate wages and salaries.

16I therefore consider that the head of the action relating to that contribution, which the Commission set out only in the reply (moreover in vague, general terms), must be regarded as being manifestly inadmissible.

17In the alternative, in case the complaint should be held to be admissible, I would argue that it should be dismissed in any event as unfounded. As I have already mentioned, the Commission has not adduced — not even at the hearing — any particulars showing that the contribution based on aggregate wages and salaries (plus 90%), which has very different characteristics from the contribution based on value added, is in the nature of a turnover tax within the meaning of the Sixth Directive; on the contrary, the details contained in the case file seem instead to suggest that it is not in the nature of a turnover tax, since the contribution based on aggregate wages and salaries is not charged on a 'cascade' basis at each stage of the marketing chain and does not take the form of a tax on value added.

Conclusion

18In the light of the foregoing, I propose that the Court should rule as follows:

By introducing and maintaining by Law No 840 of 18 December 1987 a labour market contribution which, under Article 7 and Article 8(1)(1) of that law, is charged on the value added produced by undertakings subject thereto, the Kingdom of Denmark has failed to fulfil its obligations under Article 33 of the Sixth Directive.

In contrast, that part of the application relating to the labour market contribution which, under Article 8(1)(2) of Law No 840, is charged on the basis of the aggregate wages and salaries, plus 90%, paid by certain undertakings not subject to VAT which are specified in that law, is inadmissible.

Notes

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

(2) Judgment of 31 March 1992 in Case C-200/90 Dansk Denkavit and Poulsen v Skatteministeriet [1992] ECK. 1-2217.

(3) Sec, tor example, the judgments in Cose 283/86 Commission v Belgium 11988] ECR 3271, in Case C 200/88 Commission v Greece [1990] ECR I 4299 and in Case C-347/88 Commis-sioti v Creeré [1990! ECR I 4747.

(4) Sec the judgments in Casc 31/69 Commission v Italy '1970] LCR 25. paragraph 9, and in Case 85/85 Commission v Bel láim [1986] ECR 1149, paragraph 24.

(5) Judgments in Case C-200/88 Commission v Greece, cited in footnote 3, and in Case C-209/88 Commission v Italy [1990] ECR I-4313.

(6) Sec the judgment in Case 298/86 Commission v Belgium [1988] ECR 4343, paragraphs 8 and 10. COMMISSION

(7) - Sec the judgment in Case C 347/88 Commission v Belgium, cited in footnote 3. paragraphs 24, 28 and 29 v DENMARK