C-35/90 Commission v Spain

Judgment of the Court of 17 October 1991. - Commission of the European Communities v Kingdom of Spain. - VAT - Directive 77/388/EEC - National law not complying therewith. - Case C-35/90. European Court reports 1991 Page I-05073

Summary Parties Grounds Decision on costs Operative part

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Tax provisions - Harmonization of laws - Turnover tax - Common system of value added tax - Right of Member States to maintain certain exemptions during a transitional period - Scope - Introduction of new exemptions - Not permissible

(Council Directive 77/388, Art. 2(1) and 28(3)(b) )

A Member State which, in implementation of the Sixth Directive on the harmonization of the laws of the Member States relating to turnover taxes has subjected, as provided for in Article 2(1) of the Directive, professional services, including those the consideration for which consist of copyright, provided by figurative artists, writers, literary contributors in newspapers and magazines, newspaper and magazine illustrators and photographers, composers of music, playwrights and persons responsible for the plot, adaptation, script or dialogue of audio-visual works, is no longer entitled subsequently to grant exemption for those activities in reliance on the right granted by Article 28(3)(b) of the directive to continue to exempt, during the transitional period, services supplied by authors, artists and performers.

In Case C-35/90,

Commission of the European Communities, represented by Daniel Calleja y Crespo, a member of its Legal Service acting as Agent, with an address for service in Luxembourg at the office of Roberto Hayder, a representative of its Legal Service, Wagner Centre, Kirchberg,

applicant,

v

Kingdom of Spain, represented by Carlos Bastarreche Saguees, Director-General of Community Legal and Institutional Coordination, and Antonio Hierro Hernández-Mora, Abogado del Estado, acting as Agents, with an address for service in Luxembourg at the Spanish Embassy, 4-6 Boulevard Emmanuel Servais,

defendant,

APPLICATION for a declaration that, by exempting from value added tax professional services, including those the consideration for which consists of copyright, provided by figurative artists, writers, literary contributors to newspapers and magazines, newspaper and magazine illustrators and photographers, composers of music, playwrights and persons responsible for the plot, adaptation, script or dialogue of audio-visual works, contrary to Article 2(1) of the Sixth Council Directive (No 77/388/EEC) of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover tax - Common system of value added tax: uniform basis of assessment (Official Journal 1977 L 145, p. 1), the Kingdom of Spain has failed to fulfil its obligations under the EEC Treaty,

THE COURT,

composed of: O. Due, President, Sir Gordon Slynn, R. Joliet, F. Grévisse and P.J.G. Kapteyn (Presidents of Chambers), C.N. Kakouris, J.C. Moitinho de Almeida, M. Díez de Velasco and M. Zuleeg, Judges,

Advocate General: G. Tesauro,

Registrar: H.A. Ruehl, Principal Administrator,

having regard to the Report for the Hearing,

after hearing oral argument presented by the parties at the sitting on 25 April 1991, during which the Kingdom of Spain was represented by G. Calvo Diaz and Rosario Silva de Lapuerta, acting as Agents,

after hearing the Opinion of the Advocate General at the sitting on 7 May 1991,

gives the following

Judgment

Grounds

1By application lodged at the Court Registry on 2 February 1990, the Commission of the European Communities brought, under Article 169 of the EEC Treaty, an action for a declaration that, by exempting from value added tax professional services, including those the consideration for which consists of copyright, provided by figurative artists, writers, literary contributors to newspapers and magazines, newspaper and magazine illustrators and photographers, composers of music, playwrights and persons responsible for the plot, adaptation, script or dialogue of audio-visual works, contrary to Article 2(1) of the Sixth Council Directive (No 77/388/EEC) of 17 May 1977 on the harmonization of laws of the Member States relating to turnover tax - Common system of value added tax: uniform basis of assessment (Official Journal 1977 L 145, p. 1), the Kingdom of Spain had failed to fulfil its obligations under the EEC Treaty.

2The aforementioned professional services were subject to the general system of value added tax (hereinafter referred to as "VAT") pursuant to the provisions of the Sixth Directive and the Act of Accession of the Kingdom of Spain to the European Communities by Law No 30 of 2 August 1985 on VAT (Boletin Oficial del Estado Español of 9 August 1985). That liability was confirmed by Royal Decree No 2028 of 30 October 1985 approving the regulation on VAT (Boletin Oficial del Estado Español of 31 October 1985). Subsequently, the third supplementary provision of Law No 22 of 11 November 1987 on intellectual property (Boletin Oficial del Estado Español of 17 November 1987) exempted those services from VAT.

3The Commission considers that that exemption is contrary to Article 2(1) of the Sixth Directive which subjects to VAT "the supply of goods or services effected for consideration within the territory of the country by a taxable person acting as such". It considers first of all that only the Member States who were already charging VAT in accordance with the earlier Community directives when the Sixth Directive entered into force had the right to continue to grant exemption for a transitional period to certain services including those in question in accordance with Article 28(3)(b) of the Sixth Directive. As regards Member States who subsequently joined the Community only authorization similar to that obtained by the Portuguese Republic in the Act of Accession would have allowed the Kingdom of Spain to apply the aforementioned provision.

4The Commission adds that even if that interpretation of Article 28(3)(b) is not accepted and if that provision were interpreted as allowing a new Member State to continue to exempt the activities in question in the case where such exemption existed in relation to a tax, such as that in force in Spain before accession (cumulative multi-stage tax on the volume of transactions), the exemption in question would be unlawful because the Kingdom of Spain cannot be authorized to restore exemption from VAT for the services on which, since its accession, it has charged VAT.

5Reference is made to the Report for the Hearing for a fuller account of the facts of the case, the course of the procedure and the submissions and arguments of the parties, which are mentioned or discussed hereinafter only in so far as is necessary for the reasoning of the Court.

6The Spanish Government considers that Article 28(3)(b) of the Sixth Directive authorizes the exemption in question. Article 28(3) reads: "during the transitional period referred to in paragraph 4, Member States may: ... (b) continue to exempt the activities set out in Annex F under conditions existing in the Member State concerned", and Annex F includes at Point 2 "services supplied by authors, artists, performers". At the time the Sixth Directive was adopted as well as immediately before accession of the Kingdom of Spain to the European Communities the provision of services in question was exempt in Spain from the tax which VAT superseded.

7Since the Kingdom of Spain subjected the provision of the services in question to the general scheme of VAT by Law No 30/1985 which entered into force on 1 January 1986 it could no longer subsequently claim the right to continue to exempt those activities pursuant to Article 28(3)(b) of the Sixth Directive.

8The Spanish Government contended in addition that the extension of the transitional scheme on exemptions beyond the period provided for in Article 28(4) allows Article 28(4)(3)(b) to be interpreted as meaning that Member States may reintroduce into their law the exemption of the activities in question, in particular where it is necessary to ensure equality of treatment for authors residing in their territory in relation to authors residing in the territory of other Member States who continue to grant such exemption.

9Although in interpreting a provision of Community law it is necessary to take account of how the law stands at the date when the provision in question must be applied (see, inter alia, Opinion 1/78 of 4 October 1979, point 44, [1979] ECR 2871), the extension of the transitional scheme of exemptions from VAT beyond the period originally provided for cannot justify the right of Member States to grant exemptions which they were not authorized to grant. Such a right would compromise the object of Article 28(3)(b) which is to enable a progressive adjustment of the national laws in the areas in question.

10In consequence it must be observed that, by exempting from value added tax professional services, including those the consideration for which consists of copyright, provided by figurative artists, writers, literary contributors to newspapers and magazines, newspaper and magazine illustrators and photographers, composers of music, playwrights and persons responsible for the plot, adaptation, script or dialogue of audio-visual works, contrary to Article 2(1) of the Sixth Council Directive (No 77/388/EEC) of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover tax - Common system of value added tax: uniform basis of assessment, the Kingdom of Spain has failed to fulfil its obligations under the EEC Treaty.

Costs

Costs

11Under Article 69(2) of the Rules of Procedure, the unsuccessful party is to be ordered to pay the costs. Since the Kingdom of Spain has been unsuccessful, it must be ordered to pay the costs.

Operative part

On those grounds,

THE COURT

hereby:

1. Declares that, by exempting from value added tax professional services, including those the consideration for which consists of copyright, provided by figurative artists, writers, literary contributors to newspapers and magazines, newspaper and magazine illustrators and photographers, composers of music, playwrights and persons responsible for the plot, adaptation, script or dialogue of audio-visual works, contrary to Article 2(1) of the Sixth Council Directive (No 77/388/EEC) of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover tax - Common system of value added tax: uniform basis of assessment, the Kingdom of Spain has failed to fulfil its obligations under the EEC Treaty;

Signatures

2. Orders the Kingdom of Spain to pay the costs.

OPINION OF MR ADVOCATE GENERAL TESAURO delivered on 7 May 1991 * Mr President, Members of the Court,

1This application is for a declaration that, by exempting from value added tax the professional services, including those whose consideration consists in copyright, provided by figurative artists, writers, literary contributors, newspaper and magazine illustrators and photographers, musical composers, playwrights and persons responsible for the plot, adaptation, script or dialogue of audio-visual works, the Kingdom of Spain has infringed Article 2(1) of the Sixth Council Directive (No 77/388/EEC) of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment (Official Journal 1977 L 145, p. 1, hereinafter referred to as 'the directive') and has therefore failed to fulfil its obligations under the Treaty.

2I shall remind you briefly of certain circumstances in the present case which are important for what I have to say and as regards the rest refer to the Report for the Hearing.

Article 7(2) of the Spanish Law No 30 of 2 August 1985 which introduced the scheme of value added tax made the

* Original language: kalian.

aforementioned professional services liable to VAT at the reduced rate of 6%.

However, two years later a law on intellectual property (Law No 22 of 11 November 1987) exempted those services from VAT.

That exemption, which the Commission considers to be contrary to the principle in Article 2(1) of the directive that VAT should have general application, is the subject of the present action.

3The Spanish Government considers that the exemption in question is justified by the derogation referred to in Article 28(3)(b) of the directive.

Article 28(3)(b) provides that during the transitional period (which was to have ended on 1 January 1983 but was subsequently extended) Member States may 'continue to exempt the activities set out in Annex F under conditions existing in the Member State concerned'. Services eligible for exemption under Annex F include services supplied by 'authors, artists, performers'.

In the Spanish Government's opinion that provision allows all Member States, including those who joined the Community subsequently, to maintain for the transitional period referred to in Article 28(4) the exemptions applicable when the Sixth Directive entered into force.

Since the Spanish scheme which obtained prior to VAT did not tax the services which are the subject of the present proceedings, it follows, in the Government's view, that Spain is authorized to apply to them a transitional scheme of exemption in accordance with Article 28.

4The Commission rejects that view for two reasons. In the first place, it considers that in view of the derogating nature of the rule, in the absence of a specific provision in the Act of Accession, Article 28(3) cannot apply to States which joined the Community subsequently. In its view, that is confirmed a contrario by the fact that in the case of Portugal the right to exempt from VAT certain transactions referred to in Article 28(3)(b) is expressly mentioned in the Act of Accession. On the other hand, the Act of Accession of Spain contains no reference to the provision in question so that the possibility of relying on Article 28(3)(b) for the purposes of justifying the exemptions in question must be regarded as excluded.

In the second place the Commission argues that even assuming that Spain may rely on the derogation in question, in any event the exemption which is the subject of the present proceedings falls outside the scope of that provision and is not justified by it. According to the Commission, the provision, as is clearly apparent from its terms, allows a Member State only to 'continue to exempt' specific activities. It thus allows only an existing exemption to be continued, but once VAT has been applied to specific services it prohibits their being subsequently granted exemption. In the present case it is common ground that in Spain the activities in question were subjected to the general scheme of VAT pursuant to the Sixth Directive by Law No 30 of 2 August 1985 until the entry into force of Law No 22 of 11 November 1987, that is, for more than two years. The exemption provided for by the aforementioned 1987 law thus obviously constitutes a new exemption which is quite unjustified by Article 28(3)(b).

5Let me say straightaway that of those two arguments put forward by the Commission the second seems to me decisive.

The wording of the provision is extremely clear. It allows a Member State only to continue to exempt specific activities 'under conditions existing in the Member State concerned'. Conversely, that provision does not allow exemption to be granted simply to any transaction which was not subject to tax prior to the entry into force of the directive. In other words, once a Member State, like Spain in the present case, in implementation of the directive has subjected specific activities to VAT it can no longer subsequently rely on Article 28(3)(b) to grant them exemption from VAT and from the general scheme of liability. Furthermore, to give States such a power, apart from the fact that it is quite excluded by the clear terms of the provision in question, would be contrary to the principles of general application and neutrality in respect of the tax which are implied in the directive and which, as the Commission rightly pointed out, are an essential key in interpreting derogating provisions.

In addition, the interpretation which I propose seems to be in line with that sanctioned by the Court in its judgment in Case 73/85 Kerrutt v Finanzamt Mönchen gladbach-Mitte [1986] ECR 2219 where it was stated that the wording of the provision in question precludes 'the introduction of new exemptions or the extension of the

7 I therefore propose that the Court defendant to pay the costs.

scope of existing exemptions after the date of entry into force of the directive'.

6In view of those observations, I think it is possible to grant the present application without it being necessary to go further into the other argument put forward by the Commission that since the Act of Accession is silent on the subject, Spain may not rely on Article 28(3)(b). Moreover, that argument does not seem to be convincing since in the absence of specific limits or reservations the State which joins accepts all the rights and obligations resulting from the acquis communautaire which as regards the Sixth Directive necessarily includes the provisions of Article 28.

grant the application and order the