C-308/96 Madgett andBaldwin

JUDGMENT OF THE COURT (Fifth Chamber)

22 October 1998 *

In Joined Cases C-308/96 and C-94/97,

REFERENCES to the Court under Article 177 of the EC Treaty by the High Court of Justice of England and Wales, Queen's Bench Division, and the VAT and Duties Tribunal, London, for preliminary rulings in the proceedings pending before them between

Commissioners of Customs and Excise

and

T. P. Madgett and R. M. Baldwin, trading as The Howden Court Hotel (Case C-308/96),

and between

T. P. Madgett and R. M. Baldwin, trading as The Howden Court Hotel,

and

* Language of the case: English.

of Excise (Case C-94/97),

Commissioners Customs and

on the interpretation of Article 26 of the 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),

THE COURT (Fifth Chamber),

composed of: J.-P. Puissochet, President of the Chamber, J. C. Moitinho de Almeida, C. Gulmann (Rapporteur), L. Sevón and M. Wathelet, Judges,

Advocate General: P. Léger, Registrar: H. A. Rühi, Principal Administrator,

after considering the written observations submitted on behalf of:

— Mr Madgett and Mr Baldwin (Cases C-308/96 and C-94/97), by Jeremy Woolf, Barrister, instructed by Rice-Jones & Smiths, Solicitors,

— the United Kingdom Government (Case C-308/96), by Lindsey Nicoli, of the Treasury Solicitor's Department, acting as Agent, and Stephen Richards and Hugh Davies, Barristers,

— the United Kingdom Government (Case C-94/97), by Lindsey Nicoli, Nicholas Paines QC and Hugh Davies, — the German Government (Case C-308/96), by Ernst Röder, Ministerialrat in the Federal Ministry of Economic Affairs, acting as Agent,

— the German Government (Case C-94/97), by Ernst Roder and Claus-Dieter Quassowski, Regierungsdirektor in the Federal Ministry of Economic Affairs, acting as Agent,

— the Greek Government (Case C-308/96), by Fokion Georgakopoulos, Deputy Legal Adviser in the State Legal Service, and Anna Rokofyllou, Adviser to the Deputy Minister for Foreign Affairs, acting as Agents,

— the Swedish Government (Cases C-308/96 and C-94/97), by Erik Brattgård, Departementsråd in the Foreign Trade Division of the Ministry of Foreign Affairs, acting as Agent,

— the Commission of the European Communities (Case C-308/96), by Nicholas Khan and Enrico Traversa, of its Legal Service, acting as Agents,

— the Commission of the European Communities (Case C-94/97), by Richard Lyal, of its Legal Service, acting as Agent, and Enrico Traversa,

having regard to the Report for the Hearing,

after hearing the oral observations of Mr Madgett and Mr Baldwin, represented by Jeremy Woolf and Peter Burton, Solicitor; the United Kingdom Government, represented by Dawn Cooper, of the Treasury Solicitor's Department, acting as Agent, and Nicholas Paines and Stephen Richards; the German Government, represented by Ernst Roder; the Greek Government, represented by Fokion Georgakopoulos and Anna Rokofyllou; and the Commission, represented by Nicholas Khan and Richard Lyal, at the hearing on 5 February 1998,

after hearing the Opinion of the Advocate General at the sitting on 30 April 1998,

gives the following

Judgment

Legal context and the dispute

1By order of 16 November 1995, received at the Court on 23 September 1996, the High Court of Justice of England and Wales, Queen's Bench Division, referred to the Court for a preliminary ruling under Article 177 of the EC Treaty two questions on the interpretation of Article 26 of the 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, hereinafter 'the Sixth Directive').

2By order of 26 February 1997, received at the Court on 3 March 1997, the VAT and Duties Tribunal, London, referred for a preliminary ruling under Article 177 of the EC Treaty two questions on the interpretation of the same provision of the Sixth Directive.

3Those questions were raised in proceedings in which Mr Madgett and Mr Baldwin are in disagreement with the Commissioners of Customs and Excise as to whether the special scheme under Article 26 of the Sixth Directive applies to them by reason of the fact that they offer travel packages to their customers in the context of their hotel business.

4Under Article 11A(1)(a) of the Sixth Directive, the taxable amount, in respect of most supplies of services, consists of 'everything which constitutes the consideration which has been or is to be obtained by the supplier from the purchaser, the customer or a third party for such supplies ...'.

5Article 26 of the Sixth Directive, which introduces an exception to the general rules on the taxable amount with respect to certain operations of travel agents and tour operators, states:

'1. Member States shall apply value added tax to the operations of travel agents in accordance with the provisions of this Article, where the travel agents deal with customers in their own name and use the supplies and services of other taxable persons in the provision of travel facilities. This Article shall not apply to travel agents who are acting only as intermediaries and accounting for tax in accordance with Article 11A(3)(c). In this Article travel agents include tour operators.

2. All transactions performed by the travel agent in respect of a journey shall be treated as a single service supplied by the travel agent to the traveller. It shall be taxable in the Member State in which the travel agent has established his business or has a fixed establishment from which the travel agent has provided the services. The taxable amount and the price exclusive of tax, within the meaning of Article 22(3)(b), in respect of this service shall be the travel agent's margin, that is to say, the difference between the total amount to be paid by the traveller, exclusive of value added tax, and the actual cost to the travel agent of supplies and services provided by other taxable persons where these transactions are for the direct benefit of the traveller.

3. If transactions entrusted by the travel agent to other taxable persons are performed by such persons outside the Community, the travel agent's service shall be treated as an exempted intermediary activity under Article 15(14). Where these transactions are performed both inside and outside the Community, only that part of the travel agent's service relating to transactions outside the Community may be exempted.

4. Tax charged to the travel agent by other taxable persons on the transactions described in paragraph 2 which are for the direct benefit of the traveller, shall not be eligible for deduction or refund in any Member State.'

6Article 26 of the Sixth Directive was transposed in United Kingdom law by section 37A of the Value Added Tax Act 1983 and the Value Added Tax (Tour Operators) Order 1987. A detailed explanation of the provisions of the United Kingdom legislation is given in Leaflet 709/5/88 of the Commissioners of Customs and Excise, entitled 'Tour Operator's Margin Scheme' (hereinafter 'TOMS'). That scheme requires the total amount received by the travel agent or tour operator to be apportioned between services bought in from third parties and in-house services, by reference to the actual cost of each component.

7Mr Madgett and Mr Baldwin run the Howden Court Hotel in Torquay, Devon, England. 90% of the hotel's customers, most of whom come from the north of England, buy a 'package', that is to say that they pay a fixed price covering (i) half-board accommodation, (ii) transport by coach from various pick-up points in the north of England and (iii) a day excursion by coach during their stay at the hotel. Mr Madgett and Mr Baldwin obtain the transport services from third parties. The other customers make their own travel arrangements to and from the hotel. They do not have the sightseeing excursion and pay a different price.

8Mr Madgett and Mr Baldwin consider that Article 26 of the Sixth Directive does not apply to them, on the ground that they are hoteliers, not tour operators. They also state that, using the general rules of the Sixth Directive for determining the taxable amount, the quarterly VAT returns involved Mr Madgett in only half a day's work, whereas TOMS calculations, by requiring a series of sub-apportionment exercises, would involve substantial additional work.

9The Commissioners of Customs and Excise take the view, however, that TOMS applies also to hoteliers who offer their customers travel packages containing both components which the operator provides himself ('in-house services') and components which he buys in from third parties; in the notices of assessment for the period from 1 May 1988 to 31 January 1993, they therefore considered that Mr Madgett and Mr Baldwin should be taxed under that scheme.

10In those circumstances, Mr Madgett and Mr Baldwin appealed to the VAT and Duties Tribunal, which held that Article 26 of the Sixth Directive did not apply to them. The Commissioners of Customs and Excise appealed against that decision to the High Court of Justice, which stayed proceedings and referred the following two questions to the Court for a preliminary ruling (Case C-308/96):

'1. What are the criteria for determining whether the operations of a taxable person are the operations of a "travel agent" or "tour operator" to which the provisions of Article 26 of Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover tax (the Sixth Directive on Value Added Tax) apply? In particular, do the said provisions apply to the operations of a person who, though not a "travel agent" or "tour operator" in the ordinary English meanings of those expressions, provides for the benefit of travellers services of a kind commonly provided by travel agents or tour operators?

2. Having regard to the answer to Question 1, do the said provisions apply to operations of the kind in issue in the present case, where the owners of a hotel in the south of England, as part of their business as hoteliers, offer to customers at a single inclusive charge a week's stay at the hotel, transport by coach between the hotel and points in the north of England, and a local sightseeing trip by coach during their stay at the hotel (the transport elements being bought in by the owners of the hotel from a coach hire company)?'

1 1 In the proceedings before the High Court of Justice, Mr Madgett and Mr Baldwin raised the further argument that the method of apportionment prescribed by TOMS was contrary to the Sixth Directive. Since that point was not the subject of the appeal before the High Court, the proceedings before the VAT and Duties Tribunal were reopened.

12In the latter proceedings, Mr Madgett and Mr Baldwin submitted that the provision requiring the price paid by the traveller to be apportioned between the components of the package bought in from third parties and the components provided as in-house services on the basis of the actual costs is neither rational nor logical. The Commissioners of Customs and Excise contended that in providing that the tour operator's margin is to be calculated on the basis of the actual cost for both bought-in supplies and in-house supplies, TOMS is consistent with the provisions of Article 26 of the Sixth Directive.

13In those circumstances, the VAT and Duties Tribunal stayed the proceedings and referred the following two questions to the Court for a preliminary ruling (Case C-94/97):

'If it is determined in Case C-308/96 that the provisions of Article 26 of the Sixth Directive apply to operations of the kind in issue in the present case, 1. On the proper interpretation of Article 26, where in a single transaction a tour operator provides a service to the traveller part of which is supplied to the tour operator by other taxable persons ("bought in") and part of which is supplied by the tour operator from its own resources ("in-house"), on what basis is the tour operator's margin under Article 26(2) to be calculated?

2. Is Article 26 to be interpreted as

(a) requiring the apportionment of the total amount received by the tour operator from the traveller between bought-in and in-house supplies by reference to the costs of the components; or

(b)as authorising Member States to require apportionment by reference to such costs (i) generally or (ii) in the case of operations of the kind in issue in the present case; or

(c) as leaving such apportionment to be made in accordance with the normal principles for determining the taxable amount under Article 11?'

14By order of the President of the Court of 11 December 1997, the two cases were joined for the purposes of the oral procedure and the judgment.

The questions referred by the High Court of Justice

15By its questions, which should be examined together, the High Court essentially asks whether Article 26 of the Sixth Directive applies to a hotelier who, in return for a package price, offers his guests, in addition to accommodation, return transport between distant pick-up points and the hotel and an excursion by coach during their stay at the hotel, those transport services being bought in from third parties.

16Mr Madgett and Mr Baldwin submit that for a trader to be subject to the special scheme under Article 26 of the Sixth Directive, he must be either a 'travel agent' or a 'tour operator'. Those expressions refer to taxable persons whose activity consists in organising, for the benefit of travellers, the supply of accommodation or transport or other travel services, using the supplies of other persons which are acquired for the direct benefit of travellers. Those expressions do not refer to taxable persons who, as an ancillary part of another activity, buy travel services for the direct benefit of travellers. They consider that their business is concentrated essentially on the service offered to hotel guests and that the transport is provided only for their convenience, to encourage them to stay in the hotel. The transport should therefore be regarded as purely ancillary to their activity as hoteliers.

17The United Kingdom, German, Greek and Swedish Governments and the Commission submit that the criterion for determining whether a taxable person's transactions are subject to Article 26 of the Sixth Directive is whether the supplies of services in question are of the kind referred to in that provision, even if the taxable person is not a travel agent or tour operator in the ordinary meaning of those terms. In those circumstances, the transactions effected by Mr Madgett and Mr Baldwin fall within the scope of Article 26 of the Sixth Directive, since they provide services in their own name, offering their customers a single package which includes travel and accommodation, and using for that purpose a coach service provided by a third party under a transaction which is for the direct benefit of travellers.

18It must be borne in mind at the outset that the services provided by travel agents and tour operators most frequently consist of multiple services, in particular transport and accommodation, supplied either within or outside the territory of the Member State in which the undertaking has established its business or has a fixed establishment. The application of the normal rules on place of taxation, taxable amount and deduction of input tax would, by reason of the multiplicity of services and the places in which they are provided, entail practical difficulties for those undertakings of such a nature as to obstruct their operations. In order to adapt the applicable rules to the specific nature of such operations, the Community legislature set up a special VAT scheme in Article 26(2), (3) and (4) of the Sixth Directive (see Case C-163/91 Van Ginkel v Inspecteur der Omzetbelasting te Utrecht [1992] ECR I-5723, paragraphs 13 to 15).

19Although the principal reason for the special margin scheme under Article 26 of the Sixth Directive is the existence of problems in connection with travel services which include elements in more than one Member State, the wording of that provision is such that it applies also to supplies of services within a single Member State.

20Furthermore, the underlying reasons for the special scheme for travel agents and tour operators are equally valid where the trader is not a travel agent or tour operator within the normal meaning of those terms, but effects identical transactions in the context of another activity, such as that of hotelier.

21To interpret Article 26 of the Sixth Directive as applying solely to traders who are travel agents or tour operators within the normal meaning of those terms would mean that identical services would come under different provisions depending on the formal classification of the trader.

22Finally, as the Advocate General observes in point 32 of his Opinion, to make application of the special scheme under Article 26 of the Sixth Directive depend on a prior classification of a trader would prejudice the aim of that provision, create distortion of competition between traders and jeopardise the uniform application of the Sixth Directive.

23It must therefore be held that the scheme under Article 26 of the Sixth Directive applies to traders who organise travel or tour packages in their own name and entrust other taxable persons with the supply of the services generally associated with that kind of activity, even if they are not, formally speaking, travel agents or tour operators.

24However, as the Advocate General notes in point 36 of his Opinion, traders such as hoteliers who provide services habitually associated with travel frequently make use of services bought in from third parties which take up a small proportion of the package price compared to the accommodation and are among the tasks traditionally entrusted to such traders. Those bought-in services do not therefore constitute for customers an aim in itself, but a means of better enjoying the principal service supplied by the trader.

25In such circumstances the services bought in from third parties remain purely ancillary in relation to the in-house services, and the trader should not be taxed under Article 26 of the Sixth Directive.

26Where, however, a hotelier habitually offers his customers, in addition to accommodation, services which go beyond the tasks traditionally entrusted to hoteliers, and which cannot be carried out without a substantial effect on the package price charged, such as travel to the hotel from distant pick-up points, such services are not to be equated with purely ancillary services.

27In view of the foregoing, the answer to the questions referred by the High Court of Justice must be that Article 26 of the Sixth Directive applies to a hotelier who, in return for a package price, habitually offers his customers, in addition to accommodation, return transport between certain distant pick-up points and the hotel and a coach excursion during their stay, those transport services being bought in from third parties.

The questions referred by the VAT and Duties Tribunal

28By its questions, which should be examined together, the VAT and Duties Tribunal essentially asks how to calculate the taxable margin within the meaning of Article 26 of the Sixth Directive where a trader who is subject to that provision effects, in return for a package price, transactions consisting partly of in-house services and partly of bought-in services.

29In order to answer that question, it must first be determined whether, where packages are made up of mixed services, Article 26 applies only to the services bought in from third parties, or to all the services. Thereafter, the method of calculating the part of the package relating to in-house services will be examined.

30With respect to the first part of the question, Mr Madgett and Mr Baldwin, the United Kingdom and German Governments and the Commission submit that the special scheme under Article 26 of the Sixth Directive applies only to services bought in from third parties.

31The Swedish Government, however, considers that Article 26 should also be applied to in-house services.

32Here, it must first be borne in mind that under Article 26(1) of the Sixth Directive the scheme applies to the operations of travel agents where the supplies and services of other taxable persons are used in the provision of travel facilities, and that under Article 26(2) the taxable amount is the difference between the total amount to be paid by the traveller, excluding VAT, and the actual cost to the travel agent of the supplies and services provided by other taxable persons.

33Next, it is to be noted that Article 26 of the Sixth Directive makes no reference to in-house services, and that the essential aim of that provision is to avoid the difficulties to which traders would be exposed by application of the general principles of the Sixth Directive concerning transactions involving the supply of services bought in from third parties.

34Finally, it should be recalled that the scheme under Article 26 constitutes an exception to the normal rules of the Sixth Directive and must be applied only to the extent necessary to achieve its objective.

35The special scheme under Article 26 of the Sixth Directive must therefore be held to apply only to the services bought in from third parties.

36With respect to the second part of the question, Mr Madgett and Mr Baldwin and the Commission submit that the price of the in-house services should be calculated on the basis of market value, in accordance with the normal principles for determining the taxable amount laid down in Article 11 of the Sixth Directive. In the present case the market value of the accommodation is the room price charged by the hotel to customers not making use of the package.

37The German Government, however, submits that the apportionment between that part of the travel which falls within the special scheme under Article 26 and that part to which Article 26 does not apply should in principle reflect the ratio of the actual costs of the services bought in from third parties to the costs incurred for the in-house services. The part of the travel price relating to in-house services may, however, be determined in another way in some cases, if that leads to an appropriate result.

38The United Kingdom Government explains that under TOMS, which it considers to be compatible with Article 26 of the Sixth Directive, the trader must calculate the total cost to him of providing packages, that cost being made up of, on the one hand, the sums he pays for the services bought in from third parties and, on the other, the cost to him of providing the in-house services. The total cost is subtracted from the total amount received, to produce the total margin. That margin is then divided into the margin on the bought-in services and the margin on the in-house services, in the proportion of the expenditure relating to the bought-in services to the cost of the in-house services. To ensure uniform application of the tax, the same rules should apply regardless of the proportion of in-house and bought-in services in the package. Since Article 26 prescribes a system of taxing the bought-in element by reference to the margin, that is to say to the difference between actual cost and income, there is no reason to depart from that principle with respect to the in-house services.

39It should be recalled that Article 26 of the Sixth Directive, because it does not contemplate the provision of packages comprising both bought-in and in-house services, does not define any criteria by which the margin on bought-in services may be identified in distinction to the margin on in-house services.

40In this connection, it should be noted that Article 11A(1)(a) of the Sixth Directive states that the taxable amount for VAT consists, in respect of most services, of everything which constitutes the consideration for the service. It has consistently been held that the consideration must be interpreted as what is actually received, not as a value estimated according to objective criteria (see Case 230/87 Naturally Yours Cosmetics v Commissioners of Customs and Excise [1988] ECR 6365, paragraph 16).

41As the Advocate General observes in point 65 of his Opinion, it follows from the existence of a package price covering both services bought in from third parties — and so covered by Article 26 — and in-house services — not covered by that provision — that the consideration within the meaning of Article 11A(1)(a) of the Sixth Directive cannot be used as the taxable amount for the in-house services which are provided as part of the package.

42It is therefore necessary to determine the unit of reference to be used as an alternative to the consideration in order to identify the part of the package which relates to the in-house services. There are two possible methods, one based on actual costs as under TOMS, the other based on market value.

43In this context, it should be observed, first, as the Advocate General notes in point 71 of his Opinion, that the actual cost method used by the United Kingdom Government could be problematical, as there is no reason to suppose that the margins on the different services which make up the package are proportional to the respective costs of those services.

44Second, use of the criterion of market value — in the present case the room and half-board prices charged by the hotel where customers do not make use of the package — may also be to some extent arbitrary if the price of the accommodation offered as an in-house service as part of the package is taken as being the same as the price for accommodation offered as a single service.

45The actual cost method in relation to the in-house services requires a series of complex sub-apportionment exercises and thus also means substantial additional work for the trader. By contrast, use of the market value of the in-house services, as the Advocate General observes in point 76 of his Opinion, has the advantage of simplicity, since there is no need to distinguish the various elements of the value of the in-house services.

46In those circumstances — bearing in mind that it is common ground in the present case that calculation of the VAT on the margin for the bought-in services by using one alternative or the other in principle gives the same figure for VAT — a trader may not be required to calculate the part of the package corresponding to the in-house services by the actual cost method where it is possible to identify that part of the package on the basis of the market value of services similar to those which form part of the package.

47In the light of the foregoing, the answer to the questions referred by the VAT and Duties Tribunal must be that, on a proper construction of Article 26 of the Sixth Directive, where a trader subject to that article effects, in return for a package price, transactions consisting of services supplied partly by himself and partly by other taxable persons, the VAT scheme under that article applies solely to the services supplied by third parties. A trader may not be required to calculate the part of the package corresponding to the in-house services by the actual cost method where it is possible to identify that part of the package on the basis of the market value of services similar to those which form part of the package.

Costs

48The costs incurred by the United Kingdom, German, Greek and Swedish Governments and by the Commission, which have submitted observations to the Court, are not recoverable. Since these proceedings are, for the parties to the main proceedings, a step in the national proceedings, the decision on costs is a matter for the court or tribunal before which those proceedings have been brought.

Operative part

On those grounds,

THE COURT (Fifth Chamber)

in answer to the questions referred to it by the High Court of Justice of England and Wales, Queen's Bench Division, and by the VAT and Duties Tribunal, London, by orders of 16 November 1995 and 26 February 1997, hereby rules:

1) Article 26 of the 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 applies to a hotelier who, in return for a package price, habitually offers his customers, in addition to accommodation, return transport between certain distant pick-up points and the hotel and a coach excursion during their stay, those transport services being bought in from third parties.

2) On a proper construction of Article 26 of the Sixth Directive 77/388, where a trader subject to that article effects, in return for a package price, transactions consisting of services supplied partly by himself and partly by other taxable persons, the VAT scheme under that article applies solely to the services supplied by third parties. A trader may not be required to calculate the part of the package corresponding to the in-house services by the actual cost method where it is possible to identify that part of the package on the basis of the market value of services similar to those which form part of the package.

Puissochet Moitinho de Almeida Gulmann

Sevón Wathelet

Delivered in open court in Luxembourg on 22 October 1998.

R. Grass J.-P. Puissochet

Registrar President of the Fifth Chamber

Opinion of Mr Advocate General Léger delivered on 30 April 1998. - Commissioners of Customs and Excise v T.P. Madgett, R.M. Baldwin and The Howden Court Hotel. - References for a preliminary ruling: High Court of Justice, Queen's Bench Division and Value Added Tax and Duties Tribunal, London - United Kingdom. - VAT - Article 26 of the Sixth VAT Directive - Scheme for travel agents and tour operators - Hotel undertakings - Accommodation and travel package - Basis of calculation of the margin. - Joined cases C-308/96 and C-94/97. European Court reports 1998 Page I-06229

1The High Court of Justice asks the Court for a ruling on whether the special scheme of VAT provided for by Article 26 of the Sixth VAT Directive 77/388/EEC (1) (hereinafter `the Sixth Directive'), intended for travel agents and tour operators, may apply to a hotelier who, in addition to accommodation, offers his customers travel to and from the hotel and arranges an excursion during the stay, in return for a single payment.

2The Value Added Tax Tribunal, hearing a point raised for the first time in the High Court of Justice, which remitted the matter to the Tribunal, asks supplementary questions on the method of calculation of the taxable amount, on the assumption that the hotelier comes under the scheme in Article 26.

3The Value Added Tax Tribunal essentially seeks to know how to compute the taxable amount for such a transaction, the special feature of which is that it includes both accommodation provided by the hotelier from his own resources, which in principle falls within the general system of VAT, and services bought in from third parties for the direct benefit of the traveller, which are services of the type expressly referred to in Article 26.

Legal background

Article 26 of the Sixth Directive

4Article 26 of the Sixth Directive makes an exception to the general system laid down by that Directive for defining the taxable amount. (2)

5Article 26 provides as follows:

`1. Member States shall apply value added tax to the operations of travel agents in accordance with the provisions of this Article, where the travel agents deal with customers in their own name and use the supplies and services of other taxable persons in the provision of travel facilities. This Article shall not apply to travel agents who are acting only as intermediaries and accounting for tax in accordance with Article 11(A)(3)(c). In this Article travel agents include tour operators.

2. All transactions performed by the travel agent in respect of a journey shall be treated as a single service supplied by the travel agent to the traveller. It shall be taxable in the Member State in which the travel agent has established his business or has a fixed establishment from which the travel agent has provided the services. The taxable amount and the price exclusive of tax, within the meaning of Article 22(3)(b), in respect of this service shall be the travel agent's margin, that is to say, the difference between the total amount to be paid by the traveller, exclusive of value added tax, and the actual cost to the travel agent of supplies and services provided by other taxable persons where these transactions are for the direct benefit of the traveller.

3. If transactions entrusted by the travel agent to other taxable persons are performed by such persons outside the Community, the travel agent's service shall be treated as an exempted intermediary activity under Article 15(14). Where these transactions are performed both inside and outside the Community, only that part of the travel agent's service relating to transactions outside the Community may be exempted.

4. Tax charged to the travel agent by other taxable persons on the transactions described in paragraph 2 which are for the direct benefit of the traveller, shall not be eligible for deduction or refund in any Member State.'

United Kingdom legislation

6Article 26 of the Sixth Directive was transposed into United Kingdom law, at the material time, by Section 37A of the Value Added Tax Act 1983 (3) and by the Value Added Tax (Tour Operators) Order 1987.

7The detailed provisions of the United Kingdom legislation are set out in Leaflet 709/5/88 of the Commissioners of Customs and Excise of 1 April 1988, entitled `Tour Operator's Margin Scheme' (`TOMS').

Facts, procedure in the national courts, and questions referred for a preliminary ruling

8Mr Madgett and Mr Baldwin operate in partnership a hotel, the Howden Court Hotel, in Devon, England. The clientele of the hotel consists of retired and semi-retired people, who generally stay for six or seven days. Ninety per cent of the hotel's customers, most of whom come from the north of England, buy a `package', that is, pay a fixed price covering (i) half-board accommodation, (ii) transport by coach from various pick-up points in the north of England and (iii) a day excursion by coach. The remaining customers make their own travel arrangements to and from the hotel. They do not go on the sightseeing tour and pay a different price.

9Mr Madgett and Mr Baldwin obtain the transport services from a third party, under an agreement with a coach hire firm for the whole of the summer season. The coach collects the customers on Saturday at various places in the north of England and takes them back to the same places on the following Friday. The coach can also be used on the Tuesday for a tour of Devon.

10Mr Madgett and Mr Baldwin always considered that Article 26 of the Sixth Directive did not apply to them, on the ground that they were hoteliers and not tour operators.

11The Commissioners of Customs and Excise, on the other hand, in notices of assessment for the period from 1 May 1988 to 31 January 1993, considered that Mr Madgett and Mr Baldwin should be taxed on the basis that the tours they provided fell within Article 26 of the Sixth Directive.

Case C-308/96

12Mr Madgett and Mr Baldwin appealed to the Value Added Tax Tribunal, which held that Article 26 did not apply to them. The Commissioners of Customs and Excise appealed against that decision to the High Court of Justice, which stayed the proceedings and referred the following two questions to the Court for a preliminary ruling:

`1. What are the criteria for determining whether the operations of a taxable person are the operations of a "travel agent" or "tour operator" to which the provisions of Article 26 of Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover tax (the Sixth Directive on Value Added Tax) apply? In particular, do the said provisions apply to the operations of a person who, though not a "travel agent" or "tour operator" in the ordinary English meanings of those expressions, provides for the benefit of travellers services of a kind commonly provided by travel agents or tour operators?

2. Having regard to the answer to Question 1, do the said provisions apply to operations of the kind in issue in the present case, where the owners of a hotel in the south of England, as part of their business as hoteliers, offer to customers at a single inclusive charge a week's stay at the hotel, transport by coach between the hotel and points in the north of England, and a local sightseeing trip by coach during their stay at the hotel (the transport elements being bought in by the owners of the hotel from a coach hire company)?'

13In the proceedings in the High Court Mr Madgett and Mr Baldwin raised a new argument, namely that the method of apportionment prescribed by Leaflet 709/5/88 for determining the tour operator's margin was contrary to the Community rules. The High Court held that it had no jurisdiction to decide the point, as it had not been considered by the Value Added Tax Tribunal and was not therefore the subject of the appeal before the High Court.

Case C-94/97

14In the reopened proceedings before the Value Added Tax Tribunal Mr Madgett and Mr Baldwin submitted that the national provision requiring the price paid by the traveller to be apportioned on a cost basis between the components of the package bought in from third parties and the components provided by the hotel itself was not consistent with Community law. In their view, Article 26 of the Sixth Directive makes no exception to the rule that the taxable amount for in-house services is to be assessed in accordance with Article 11 of that directive, even if those services form part of a package which also includes services bought in from third parties.

15The Commissioners of Customs and Excise submitted for their part that Leaflet 709/5/88 is consistent with the provisions of Article 26 in prescribing that the tour operator's margin is to be calculated on the basis of the actual cost of the services bought in.

16The Value Added Tax Tribunal thereupon stayed the proceedings pending a preliminary ruling by the Court on the following questions:

`If it is determined in Case C-308/96 that the provisions of Article 26 of the Sixth Directive do apply to operations of the kind in issue in the present case,

1. On the proper interpretation of Article 26, where in a single transaction a tour operator provides a service to the traveller part of which is supplied to the tour operator by other taxable persons ("bought in") and part of which is supplied by the tour operator from its own resources ("in-house"), on what basis is the tour operator's margin to be calculated?

2. In particular, is Article 26 to be interpreted as

(a) requiring the apportionment of the total amount received by the tour operator from the traveller between bought-in and in-house supplies by reference to the costs of the components, or

(b) as authorising Member States to require apportionment by reference to such costs (i) generally or (ii) in the case of operations of the kind in issue in the present case, or

(c) as leaving such apportionment to be made in accordance with the normal principles for determining the taxable amount under Article 11?'

Preliminary remarks

17It may be of help at this stage, for a better appreciation of the circumstances of the main proceedings and the characteristics of the rules for defining the taxable amount, to explain why Mr Madgett and Mr Baldwin may consider it to be in their interest to remain subject to the general tax scheme of the Sixth Directive rather than the scheme provided for in Article 26.

18From a strictly mathematical point of view, calculation of VAT by one method or the other leads to the same results. Taxation of the consideration for a service, deducting the input tax paid by the supplier for providing the service, and taxation of the margin on that service give an identical figure for VAT.

19However, a trader who provides both in-house services which are not part of a package and in-house services which are supplied together with bought-in services for a package price is subject to two different tax schemes. He is then faced with compulsory administrative obligations, since he is required to apportion his turnover between the tax schemes applicable.

The questions referred by the High Court of Justice

20By its first question the High Court seeks to ascertain whether the special scheme of VAT defined by Article 26 of the Sixth Directive applies to supplies of services by a trader who is not regarded as a travel agent or tour operator by his national law, where those services are of the kind generally supplied by travel agents and tour operators.

21The Court is thus essentially being asked to define the scope of the concepts of `travel agent' and `tour operator'.

22To interpret the provision, its wording must be examined and the aims of the system set up by the Community legislature identified, in accordance with the Court's settled case-law. (4)

23The Sixth Directive gives no definition of the terms used, which makes the application of Article 26 dependent on the content given to those terms by the Member States.

24Those concepts are Community concepts, however, whose definition may not be left to the discretion of the Member States. (5) Besides, the harmonisation of the laws of the Member States relating to turnover taxes is the principal aim of the Sixth Directive. Consequently, recourse to a formal criterion which made the application of the tax scheme provided for by Article 26 depend on the legal status conferred by each Member State on the traders described as travel agents or tour operators (hereinafter `travel agents') could jeopardise its uniform application on the territory of the Community. (6)

25The purpose of the provision makes it possible to identify an interpretation which is in line with the harmonisation required by the Sixth Directive.

26This was clearly stated by the Court in the Van Ginkel judgment:

`The services provided by [travel agents and tour operators] most frequently consist of multiple services, particularly as regards transport and accommodation, either within or outside the territory of the Member State in which the undertaking has established its business or has a fixed establishment.

The application of the normal rules on place of taxation, taxable amount and deduction of input tax would, by reason of the multiplicity of services and the places in which they are provided, entail practical difficulties for those undertakings of such a nature as to obstruct their operations.

In order to adapt the applicable rules to the specific nature of such operations, the Community legislature set up a special VAT scheme in Article 26(2), (3) and (4) of the Sixth Directive.' (7)

27The justification for the scheme provided for in Article 26 is thus the specific nature of the operations of travel agents, who supply services provided by other taxable persons who are often located in other Member States. Article 26 is therefore intended to erase the difficulties flowing from the multiplication of administrative formalities resulting from the variety of systems in the different Member States, by defining a single place of taxation and providing for a scheme for taxation of the travel agent's margin. The travel agent is thus released from compliance with certain binding requirements of the tax authorities of other Member States and avoids double taxation, given that tax paid in another Member State may not be deducted and, in the state of Community law at the time of adoption of the Sixth Directive, was difficult to recover.

28In common with all the Governments which have taken part in the proceedings, and with the Commission, I consider that those reasons militate in favour of the scheme under Article 26 not being limited solely to traders who are formally categorised as travel agents. In my opinion, the concepts in issue should be given a functional meaning, based on the nature of the activities of the trader in question.

29The special nature of an activity such as that carried on by a travel agent does not cease to exist solely because the trader who contracts with the traveller is not a travel agent, as that term may be defined in the Member State concerned.

30The concern for simplification shown by the Community legislature applies in the same way with respect to two traders who carry on identical activities and are thus logically confronted with comparable difficulties.

31That is an expression of the principle of the neutrality of VAT. As the German Government rightly points out, the selective application to similar activities of a system intended to simplify the performance of their tax obligations by the traders concerned would benefit one class of traders for no good reason. The activity of the others would be obstructed by the difficulties resulting from the localisation of the supplies of services.

32The Court considers that one of the principles of the VAT system is the elimination of factors which may lead to distortions of competition at national and Community level. (8) Those distortions of competition can be avoided if Article 26 is read as covering activities which are comparable according to objective criteria, not according to a predetermined classification of a trader in one occupational category even if he devotes a substantial part of his activity to the provision of services which fall within another category. (9)

33The Article 26 scheme must therefore be applied to traders who habitually arrange travel or tours and, in order to supply the services generally associated with activity of that kind, have recourse to other taxable persons.

34The criteria for identifying traders who carry on the activity of travel agents within the meaning of Article 26 of the Sixth Directive are not easy to define where some of the services offered are provided by the trader himself while others are bought in from third parties. At the hearing it became clear that a hotel could offer its customers services provided by third parties, not part of its activity sensu stricto, without it thereby being justified, in my opinion, to class it as a travel agent. That is so where a hotel arranges a taxi service for its customers for journeys to a nearby station or airport.

35The criterion used by the German Government, namely that the activity of a trader the object of whose business is not to organise travel or tours does not change its character if the services associated with his activity remain ancillary, is of some help.

36I consider that a service is ancillary if, first, it contributes to the proper performance of the principal service and, second, it takes up a marginal proportion of the package price compared to the principal service. It does not constitute an object for customers or a service sought for its own sake, but a means of better enjoying the principal service.

37So that is the case, for example, with transport which a hotel might arrange locally to take its customers to nearby destinations.

38By contrast, a service may be categorised as a service equivalent to the principal service provided by the trader if its relative share of the total amount paid by the traveller is substantial, so that it cannot be regarded as ancillary, compared with the other services supplied, whether by its price or its value from the customer's point of view. It should be added that to deserve that categorisation the service must be supplied with a certain frequency, as if it is merely occasional it is in the nature of an ancillary service.

39Thus where a hotel habitually offers its customers, in addition to accommodation, services such as tourist excursions which are outside the tasks traditionally entrusted to hotels and which cannot be performed without having a substantial effect on the package price charged, it seems to me that the associated services supplied may not be treated as ancillary services. By reason of their existence the activity of the trader then takes on a different character.

40The trader must in that case be regarded as subject to the provisions of Article 26 of the Sixth Directive, even if under national law he is not considered to be a travel agent or tour operator.

41The second question from the High Court of Justice concerns the application in the main proceedings of rules of Community law, not their interpretation. Like the Commission, I consider that it is not for the Court to decide the dispute in the place of the national court, and that it is for the national court, having regard to all the facts at its disposal and in particular its knowledge of the proportion of bought-in services in the package, to give judgment on the basis of the answer to the first question.

The questions referred by the Value Added Tax Tribunal

42The Value Added Tax Tribunal assumes, as a hypothesis, that Article 26 of the Sixth Directive applies to a trader, not recognised as a travel agent or tour operator by national law, who supplies his customers in return for a package price with services which consist partly of services provided by himself and partly of services bought in from third parties. It asks the Court how to calculate the taxable margin of the services supplied, under Article 26.

43To that end, the Value Added Tax Tribunal wishes to know the basis on which to assess the elements which make up the package price.

44A preliminary point must be to define the scope of Article 26 in such a case, where a package covers different kinds of services, in-house and bought in from third parties.

45Unlike the other parties which have intervened, the Swedish Government argues that the margin taxation scheme applies to all the services. In its view, selective application of Article 26 would lead to distortion of competition between travel agents who supply both bought-in and in-house services, which may be subject to different rates, and those who supply only bought-in services, which by definition are subject to the same rate of tax. General application of Article 26 to all the supplies of services would remove that distortion by making in-house services subject to the system used for bought-in services.

46The Swedish Government's solution certainly makes it possible to avoid the complicated apportionments which are needed if two different tax systems coexist within the same contract.

47However, it appears to me to be consistent with neither the wording nor the spirit of Article 26 of the Sixth Directive.

48Article 26(1) states very clearly that the system it prescribes is to apply to the operations of travel agents where they `use the supplies and services of other taxable persons in the provision of travel facilities'. (10)

49The method of calculation of the taxable amount, as defined by Article 26(2), is to deduct from the total amount, exclusive of VAT, to be paid by the traveller `the actual cost to the travel agent of supplies and services provided by other taxable persons where these transactions are for the direct benefit of the traveller'. (11)

50The provision makes no reference to in-house services, and it is inconceivable that that omission means that because the amount of the in-house services does not appear in the amount to be deducted, it remains included in the taxable amount. The conclusion must therefore be that that category of services comes under a different tax scheme.

51The aim pursued by the legislature, which is to adapt the applicable rules to the specific nature of the operations of travel agents, confirms that approach. The supply of in-house services takes place for the most part in the Member State in which the trader has established his business or has a fixed establishment, and that is also the place of taxation of the bought-in services under Article 26. The place of taxation of those services is thus the same as the place of taxation of the in-house services, as in the case where a trader uses bought-in services exclusively, so that, first, the distortion of competition between traders objected to by the Swedish Government is not likely to occur particularly often and, second, the application of Article 26 to in-house services is not so advantageous, on this hypothesis, from the point of view of simplification.

52In the present state of the law, the distortion which in my opinion is to be avoided is that which derives from the application of two different tax schemes - the method of determining the taxable amount provided for in Article 11 of the Sixth Directive and that provided for in Article 26 - to identical activities pursued in the same conditions, that is, by means of services bought in from third parties.

53I therefore conclude that the system under Article 26 applies to those services only.

54It follows that the taxable person must carry out two apportionments of the amount paid by his customers for the package, so as to identify the margin on the bought-in services.

55The first apportionment establishes the common margin by deducting the expenditure incurred to produce the in-house and bought-in services.

56The second apportionment distinguishes the margins for each category of services, in order to identify the taxable amount of the bought-in services.

57Article 26 of the Sixth Directive defines the method of calculation of the taxable margin on the supply of services bought in from third parties. For that purpose it refers to the actual cost to the travel agent of the supplies and services provided by other taxable persons, and that amount deducted from the total amount, exclusive of VAT, to be paid by the traveller corresponds to the taxable margin.

58However, as the provision does not envisage the case where mixed services are supplied in return for payment of a package sum, it makes no provision for isolating the margin on bought-in services from the amount of in-house services.

59The national tribunal's questions concern the reference unit to be taken in order to evaluate the cost, deduction of which will serve to identify the margin. The tribunal suggests two possible methods, one based on cost, the other on the value of the components of the package.

60The former corresponds to the British TOMS scheme. It is supported by the United Kingdom and German Governments. The trader calculates the total cost he incurs in supplying mixed services in return for the package price. That cost consists of, first, what he has paid for the bought-in services and, second, the cost generated by the supply of in-house services. The common margin for both kinds of services is obtained by deducting from that total cost the amount of the package payments received.

The common margin is then divided into its two components: the margin on the bought-in services and the margin on the in-house services. To do that, the apportionment takes place on the basis of the ratio of the expenditure on the bought-in services to the cost of the in-house services.

The margin on the bought-in services comes under the Article 26 scheme, while the margin on the in-house services is taxed in accordance with the general system of the Sixth Directive.

61The second method, supported by Mr Madgett and Mr Baldwin and by the Commission, is based on the market value of the components of the package. In other words, the expenditure incurred by the trader must, in the opinion of Mr Madgett and Mr Baldwin, be assessed in accordance with Article 11(A)(1)(a) of the Sixth Directive, which refers to the amount received as consideration for the services.

62A final possibility, put forward by the Swedish Government, is to calculate the taxable amount, in order to ensure neutrality of taxation, by reference to the actual costs of the bought-in services and to the amount which the trader would have spent had he obtained the in-house services from third parties. The Swedish Government suggests that the wholesale price of the latter services should be used. That is to be calculated on the basis of the price charged for an identical service by a third party. Note that this method of calculation is applied in the context of taxation of the common margin on the different services.

63The selective application of the VAT scheme for travel agents which I propose could justify assessment of the in-house services in accordance with Article 11(A)(1)(a) of the Sixth Directive, since they remain subject to the general VAT system.

64The Court has held that the taxable amount for a supply of services consists of everything received as consideration for the service supplied, that consideration being a subjective value, since the taxable amount is the consideration actually received and not a figure estimated according to objective criteria. (12) That is an expression of the idea that it is the parties to the contract alone who decide the price which can be charged by reference to the criteria they consider appropriate. It may no doubt be supposed that, out of concern for economic efficiency, they will set prices by reference to objective factors, but the taxable amount cannot be determined on the basis of hypothetical reasonable behaviour. What must prevail is the reality of the economic operation to be taxed.

65This approach cannot, however, simply be applied as such to the present case. The existence of a package price covering both categories of services without distinction prevents assessment of the taxable amount by reference to the consideration within the meaning of Article 11(A)(1)(a) for the in-house services supplied as part of the package. It is evidently impossible to isolate that consideration from the remainder of the package, so that the margin for the bought-in services cannot be ascertained by this method.

66The Commission nevertheless suggests that the consideration may be assessed by reference to the market value of the components of the in-house services. It proposes that reference be made to the room price charged by the hotel where customers are not on the package, that is, when they travel independently and do not go on the excursion.

67I consider, however, that each of the methods suggested contains an element of arbitrariness, which suggests that the criterion based on the closeness of the taxable amount to the reality of the economic operation concerned is not a criterion which will make it possible to select one method in preference to the others.

68The method proposed by the Commission presupposes that the price of accommodation offered as an in-house service as part of the package is identical to the price of accommodation where that is offered as a single service.

69However, a trader may have decided to offer the same service at a different rate. It is not unusual for a package to be the occasion of offering a service at a lower price in order to make the offer of mixed services more attractive. The market on which the mixed services are offered is not precisely the same as the market on which accommodation alone is offered, so that the market value of the components is not necessarily reflected in the price of the accommodation.

70Consequently, this method of calculation has the defect of being somewhat approximate.

71The method suggested by the United Kingdom and German Governments appears to me to have comparable inadequacies. Although this method of calculation begins by referring to the costs of the services provided, which are actual figures, it continues with a deduction which owes nothing to the reality of the taxable transaction, in order to apportion the common margin between the margin on bought-in services and the margin on in-house services. In fact there is no reason to suppose that the respective margins on the services which make up the package are proportional to their respective shares of the costs. It is thus at least as arbitrary to make that correspondence into a rule as to say that the price of the in-house services in the package is the same as the price charged for them outside the package.

72The Swedish Government's method requires the use as comparators of averages based on like services supplied by other traders. The wish to refer to a representative figure by means of such an assessment is legitimate. However, the figure arrived at is largely fictitious, since it has no direct relation to the service which is to be taxed. Moreover, there is a risk of imprecision, as the reference average may be disputed and thus become the subject of arguments among experts.

73Choosing a method on the sole ground that it faithfully reflects the actual structure of the package must therefore be abandoned.

74Consequently, I propose that the Court should adopt - however imperfect it may be - the method suggested by Mr Madgett and Mr Baldwin and the Commission, which minimises the practical difficulties of implementation while not encountering any major problem from the point of view of lawfulness.

75A first stage is to deduct from the package price paid by the consumer the price paid for the bought-in services. These two elements are beyond dispute, since they are matters of fact. This stage is also consistent with Article 26.

76Deduction of the market value of the in-house services has the advantage of simplicity but does not, as I have stated, reflect precisely the structure of the prices of those services within the package. Whereas with the cost-based method of calculation the taxable margin must be identified on the basis of the common margin, here there is no need to distinguish the different elements of the value of the services. (13) The margin and the cost together constitute the reference value of the in-house services, which need only be deducted from the package price to obtain the value of the bought-in services. Deduction, as described above, of the price paid for the latter services then produces the taxable margin, which is thus obtained without it being necessary to deconstruct the value of the in-house services.

77Moreover, the cost-based method requires a complicated reconstruction of the various elements of the cost price, which cannot be done without apportioning overheads between the in-house services, deduction of which from the package price gives the common margin which will be used to calculate the taxable amount, and the in-house services outside the package.

78Having recourse to market value also avoids uncertainties to do with the nature of the costs which must be deducted. The third sentence of Article 26(2) of the Sixth Directive provides for the deduction of the actual costs to the travel agent of the bought-in services where those transactions are for the direct benefit of the traveller. It follows that overheads, which do not satisfy that condition but are nevertheless used for the whole of the trader's activity, form part of the taxable margin for the bought-in services but are excluded from the margin for the in-house services. Calculation of the costs would require those overheads to be apportioned between those two categories of services. But the market values of the in-house services already include them and they do not have to be isolated in calculating the margin for the bought-in services.

79Finally, the German Government criticises this method of assessment as not being based on the same reference units, since there are deducted from the package price a cost, namely that of the bought-in services which are of direct benefit to the traveller, and a value, namely that of the in-house services.

80That point should not, in my opinion, distort the assessment of the taxable amount, as the package itself constitutes a value which is made up of various costs and margins. Since the object of the method chosen is to identify the taxable margin in respect of the bought-in services, it is possible to deduct from the package price the market value of the in-house services, which includes the cost and margin for those services.

81For the above reasons, I consequently conclude that the margin should be assessed on the basis of the market value of the in-house services.

Conclusion

82In the light of the above considerations, I propose the following answer to the questions referred by the High Court of Justice, Queen's Bench Division:

1. Article 26 of the 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, must be interpreted as meaning that the terms `travel agent' and `tour operator' apply to a trader who, although not recognised as a travel agent or tour operator by his national law, habitually arranges travel or tours, dealing with the traveller in his own name and making use of services supplied directly to the traveller by third parties.

Where the services which the traveller receives are supplied partly by other taxable persons and partly by the trader himself, the trader may not be regarded as a `travel agent' or `tour operator' within the meaning of Article 26 if the services supplied directly by third parties are ancillary in relation to the other services.

2. It is for the national court to decide the main proceedings on the basis of the answer to Question 1.

Conclusion

83I propose the following answer to the questions referred by the Value Added Tax Tribunal:

Where a trader who comes under the provisions of Article 26 of the Sixth Directive 77/388 carries out, in return for payment of a package price, operations which consist of services supplied partly by himself and partly by other taxable persons, the VAT scheme provided for in Article 26 may be applied only to the latter, in so far as they are of direct benefit to the traveller.

The margin which constitutes the taxable amount within the meaning of Article 26(2) of the Sixth Directive is to be obtained by apportioning the package price, exclusive of tax, between the in-house services and the services bought in from other taxable persons on the basis of the market value of the in-house services.

(1) - 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).

(2) - The general rules for determining the taxable amount are set out in Article 11(A)(1)(a) of the Sixth Directive, which states that the taxable amount, for most supplies of services, is to consist of `everything which constitutes the consideration which has been or is to be obtained by the supplier from ... the customer or a third party for such supplies ...'.

(3) - The corresponding provisions are now contained in Section 53 of the Value Added Tax Act 1994.

(4) - See, for example, Case C-28/95 Leur-Bloem v Inspecteur der Belastingdienst/Ondernemingen Amsterdam 2 [1997] ECR I-4161, paragraph 47.

(5) - See, for example, on another Community concept used in the Sixth Directive, `tax avoidance', Joined Cases 138/86 and 139/86 Direct Cosmetics and Laughtons Photographs v Commissioners of Customs and Excise [1988] ECR 3937, paragraph 20.

(6) - The taxable amount must also be harmonised, according to the ninth recital in the preamble to the Sixth Directive, `so that the application of the Community rate to taxable transactions leads to comparable results in all the Member States'.

(7) - Case C-163/91 Van Ginkel v Inspecteur der Omzetbelasting [1992] ECR I-5723, paragraphs 13 to 15, my emphasis.

(8) - Direct Cosmetics, cited above, paragraph 23.

(9) - On the definition, according to objective criteria, of the basis of assessment of VAT, see Direct Cosmetics, loc. cit.

(10) - My emphasis.

(11) - My emphasis.

(12) - See Case 154/80 Staatssecretaris van Financiën v Coöperatieve Aardappelenbewaarplaats [1981] ECR 445, paragraphs 10 to 13, and Case 230/87 Naturally Yours Cosmetics v Commissioners of Customs and Excise [1988] ECR 6365, paragraph 16.

(13) - As with the cost-based method, the Swedish Government's method requires identification of the proportion of the value of the in-house services which constitutes the margin for those services, so as to reconstruct the common margin, which in the Government's opinion must be taxed as a whole.