C-358/97 Commission v Ireland

JUDGMENT OF THE COURT 12 September 2000 *

In Case C-358/97,

Commission of the European Communities, represented by H. Michard and B. Doherty, of its Legal Service, acting as Agents, with an address for service in Luxembourg at the office of C. Gómez de la Cruz, also of its Legal service, Wagner Centre, Kirchberg,

applicant,

v

Ireland, represented by M.A. Buckley, Chief State Solicitor, acting as Agent, assisted by D. Sherlock, Deputy Revenue Solicitor, T. McCann SC and D. Molo ney BL, with an address for service in Luxembourg at the Irish Embassy, 28 Route d'Arlon,

defendant,

APPLICATION for a declaration that by not subjecting tolls for the use of toll roads and toll bridges in Ireland to value added tax, contrary to Articles 2 and

* Language of the case: English.

4(1), (2) and (5) 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), and by failing to make available to the Commission the amounts of own resources and interest for late payment as a consequence of that infringement, Ireland has failed to fulfil its obligations under the EC Treaty,

THE COURT,

composed of: G.C. Rodriguez Iglesias, President, J.C. Moitinho de Almeida (Rapporteur), L. Sevón, R. Schintgen (Presidents of Chambers), P.J.G. Kapteyn, C. Gulmann, J.-P. Puissochet, P. Jann, H. Ragnemalm, V. Skouris and F. Macken, Judges,

Advocate General: S. Alber, Registrar: D. Louterman-Hubeau and H.A. Rühi, Principal Administrators,

having regard to the Report for the Hearing, after hearing oral argument from the parties at the hearing on 23 November 1999, at which the Commission was represented by H. Michard and B. Doherty and Ireland was represented by T. McCann and P. Hunt BL,

after hearing the Opinion of the Advocate General at the sitting on 27 January 2000,

gives the following

Judgment

Legal context and the dispute

1By application lodged at the Court Registry on 21 October 1997, the Commission of the European Communities brought an action under Article 169 of the EC Treaty (now Article 226 EC) for a declaration that by not subjecting tolls for the use of toll roads and toll bridges in Ireland to value added tax (hereinafter 'VAT'), contrary to Articles 2 and 4(1), (2) and (5) 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') and by failing to make available to the Commission the amounts of own resources and interest for late payment as a consequence of that infringement Ireland had failed to fulfil its obligations under the EC Treaty. Legal background

2Article 2 of the Sixth Directive provides as follows:

'The following shall be subject to value added tax:

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

2. the importation of goods.'

3According to Article 4(1), (2) and (5) of the Sixth Directive:

'1. "Taxable person" shall mean any person who independently carries out in any place any economic activity specified in paragraph (2), whatever the purpose or results of that activity.

2. The economic activities referred to in paragraph (1) shall comprise all activities of producers, traders and persons supplying services including mining and agricultural activities and activities of the professions. The exploitation of tangible or intangible property for the purpose of obtaining income therefrom on a continuing basis shall also be considered an economic activity.

5 States, regional and local government authorities and other bodies governed by public law shall not be considered taxable persons in respect of the activities or transactions in which they engage as public authorities, even where they collect dues, fees, contributions or payments in connection with these activities or transactions.

However, when they engage in such activities or transactions, they shall be considered taxable persons in respect of these activities or transactions where treatment as non-taxable persons would lead to significant distortions of competition.

In any case, these bodies shall be considered taxable persons in relation to the activities listed in Annex D, provided they are not carried out on such a small scale as to be negligible.

Member States may consider activities of these bodies which are exempt under Article 13 or 28 as activities which they engage in as public authorities.'

4It is common ground that providing access to roads and related infrastructures (hereinafter 'roads') on payment of a toll is not one of the activities listed in Annex D to the Sixth Directive.

5Article 13B of the Sixth Directive provides:

'Without prejudice to other Community provisions, Member States shall exempt the following under conditions which they shall lay down for the purpose of ensuring the correct and straightforward application of the exemptions and of preventing any possible evasion, avoidance or abuse:

(b) the leasing or letting of immovable property excluding:

1. the provision of accommodation, as defined in the laws of the Member States, in the hotel sector or in sectors with a similar function, including the provision of accommodation in holiday camps or on sites developed for use as camping sites;

2. the letting of premises and sites for parking vehicles;

3. lettings of permanently installed equipment and machinery;

4. hire of safes.

Member States may apply further exclusions to the scope of this exemption.

...'

6Council Regulation (EEC, Euratom) No 1553/89 of 29 May 1989 on the definitive uniform arrangements for the collection of own resources accruing from value added tax (OJ 1989 L 155, p. 9), which replaced with effect from 1 January 1989 Council Regulation (EEC, Euratom, ECSC) No 2892/77 of 19 December 1977 implementing in respect of own resources accruing from value added tax the Decision of 21 April 1970 on the replacement of financial contributions from Member States by the Communities' own resources (OJ 1977 L 336, p. 8), last amended by Council Regulation (ECSC, EEC, Euratom) No 3735/85 of 20 December 1985 (OJ 1985 L 356, p. 1), provides in Article 1:

'VAT resources shall be calculated by applying the uniform rate, set in accordance with Decision 88/376/EEC, Euratom, to the base determined in accordance with this regulation.'

7Under Article 2(1) of Regulation No 1553/89:

'The VAT resources base shall be determined from the taxable transactions referred to in Article 2 of 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 as last amended by [Directive] 84/386/EEC, with the exception of transactions exempted under Articles 13 to 16 of that directive.'

8Council Regulation (EEC, Euratom) No 1552/89 of 29 May 1989 implementing Decision 88/376/EEC, Euratom, on the system of the Community's own resources (OJ 1989 L 155, p. 1), applicable from 1 January 1989, which repealed Council Regulation (EEC, Euratom, ECSC) No 2891/77 of 19 December 1977 implementing the Decision of 21 April 1970 on the replacement of financial contributions from Member States by the Communities' own resources (OJ 1977 L 336, p. 1), last amended by Council Regulation (ECSC, EEC, Euratom) No 1990/88 of 30 June 1988 (OJ 1988 L 176, p. 1), provides in Article 9(1):

'In accordance with the procedure laid down in Article 10, each Member State shall credit own resources to the account opened in the name of the Commission with its Treasury or the body it has appointed.'

9Under Article 11 of Regulation No 1552/89:

'Any delay in making the entry in the account referred to in Article 9(1) shall give rise to the payment of interest by the Member State concerned at the interest rate applicable on the Member State's money market on the due date for short-term public financing operations, increased by 2 percentage points. This rate shall be increased by 0.25 of a percentage point for each month of delay. The increased rate shall be applied to the entire period of delay.'

Pre-litigation procedure

Procedure relating to the Sixth Directive

10The Commission raised the question of VAT on tolls in a letter to the Irish authorities of 3 March 1987. The authorities replied by letter of 14 December 1987.

11By letter of 20 April 1988 the Commission informed the Irish Government that it considered that the failure to levy VAT on the tolls collected for the use of the East Link Bridge in Dublin was contrary to Articles 2 and 4 of the Sixth Directive. It gave the Irish Government formal notice, pursuant to Article 169 of the Treaty, that it should submit its observations on this subject within two months.

12On 17 October 1988 the Irish authorities replied that the tolls in question represented the letting of immovable property and as such were exempt from VAT under Article 13 of the Sixth Directive.

13The Commission considered that the explanations given by the Irish authorities were not satisfactory, and therefore by letter of 19 October 1989 sent the Irish Government a reasoned opinion primarily to the effect that Ireland was failing to fulfil its obligations under the Sixth Directive. Accordingly, it called on that Member State to take the measures necessary to fulfil those obligations within two months.

14By letter of 12 October 1990 the Irish authorities reiterated their view and cited Article 4(5) of the Sixth Directive in support of their defence.

The procedure relating to the system of own resources

15By letter of 27 November 1987, the Commission pointed out to the Irish authorities that the VAT which should have been collected on the tolls for the East Link Bridge had to be taken into account in the assessment of the amount to be contributed to the Community budget under the system of Community own resources.

16In their reply of 22 April 1988 the Irish authorities stated that since in their view VAT was not chargeable on the East Link bridge toll they did not consider that they owed own resources accruing from VAT (hereinafter 'VATown resources') in respect of this activity.

17On 31 January 1989 the Commission sent the Irish Government a letter of formal notice regarding its failure to comply with the rules relating to the Communities' own resources. The Commission requested inter alia that the Irish authorities make the calculations necessary to ascertain the amount of VAT own resources unpaid for the financial years 1984 to 1986 and that those amounts be paid to it, with interest for late payment as from 31 March 1988. The Commission also requested that for the years subsequent to 1986 the necessary calculations be made to determine the amount of own resources due each year and that those amounts be made available to it by the first working day of August the following year, with interest for late payment where applicable.

18The Irish authorities replied to that letter of formal notice by letter of 4 October 1989.

19As the reply of the Irish Government was not considered satisfactory the Commission, by the reasoned opinion of 19 October 1989 mentioned at paragraph 13 of this judgment, also claimed that Ireland had failed to comply with the Community rules relating to own resources.

20The Irish Government replied to the reasoned opinion, as regards own resources, by letter of 23 May 1990.

21As the replies of the Irish Government to the reasoned opinion were not considered satisfactory, the Commission brought this action concerning both the alleged infringement of provisions of the Sixth Directive and the repercussions of that infringement on the payment of the Communities' own resources.

Grounds

Substance

22By its action the Commission claims, first, that Ireland did not comply with the provisions of the Sixth Directive by failing to subject to VAT tolls collected as consideration for the use of toll roads and toll bridges, and, second, that it breached the rules relating to the system of the Communities' own resources by not paying in to the Community budget the VAT own resources relating to the sums which should have been collected by way of VAT on those tolls.

The first claim

23The Commission submits that providing access to roads on payment of a toll by the user is an economic activity within the meaning of Articles 2 and 4 of the Sixth Directive. That activity must be considered to be a supply of services carried out by a taxable person in the course of the exploitation of property for the purpose of obtaining income therefrom on a continuing basis, within the meaning of Article 4(1) and (2) of the Sixth Directive.

24The fact that this activity is carried out, as it is in Ireland, by private operators under special rules cannot, in its view, remove the transactions in question from the scope of the Sixth Directive.

25In that regard, the Commission points out that under the first paragraph of Article 4(5) of the Sixth Directive it is only in respect of activities or transactions in which they engage as public authorities that bodies governed by public law are not considered to be taxable persons. The activity at issue does not come into that category, as it does not fall within the core responsibilities of public authority which can never be delegated to private bodies, bearing in mind that the rule that bodies governed by public law are not taxable persons must be interpreted strictly.

26Moreover, the exemption referred to in the preceding paragraph can in any event only be relied on if the activity at issue is carried out by a body governed by public law.

27The Court notes, first, that by including amongst the taxable transactions defined in Article 2 not only the importation of goods but also the supply of goods or services effected for consideration within the territory of a country and by defining 'taxable person' in Article 4(1) as any person who independently carries out an economic activity, whatever the purpose or results of that activity, the Sixth Directive attributes to VAT a very wide scope (Case 235/85 Commission v Netherlands [1987] ECR 1471, paragraph 6).

28'Economic activities' are defined in Article 4(2) as comprising all activities of producers, traders and persons supplying services. In particular, the exploitation of tangible or intangible property for the purpose of obtaining income therefrom on a continuing basis is also to be considered an economic activity.

29An analysis of those definitions shows that the scope of the term 'economic activities' is very wide, and that the term is objective in character, in the sense that the activity is considered per se and without regard to its purpose or results (Commission v Netherlands, cited above, paragraph 8).

30In view of the scope of the term 'economic activities' it must be held that, in providing access to roads in return for payment, operators in Ireland are carrying out an economic activity within the meaning of the Sixth Directive.

31In view of the objective character of the term 'economic activities', the fact that the activity in question consists in the performance of duties which are conferred and regulated by law in the public interest is irrelevant. Indeed, Article 6 of the Sixth Directive expressly provides that certain activities carried on in pursuance of the law are to be subject to the system of VAT {Commission v Netherlands, cited above, paragraph 10).

32It must also be remembered that according to the case-law of the Court (in particular Case 102/86 Apple and Pear Development Council v Commissioners of Customs and Excise [1988] ECR 1443, paragraph 12, and Case C-258/95 Fillibeck v Finanzamt Neustadt [1997] ECR I-5577, paragraph 12), the concept of the supply of services effected for consideration within the meaning of Article 2(1) of the Sixth Directive requires the existence of a direct link between the service provided and the consideration received.

33As the Commission rightly submitted, providing access to roads on payment of a toll fits that definition. Use of the road depends on payment of a toll, the amount of which varies inter alia according to the category of vehicle used and the distance covered. There is, therefore, a direct and necessary link between the service provided and the financial consideration received.

34Accordingly, providing access to roads on payment of a toll constitutes a supply of services for consideration within the meaning of Article 2(1) of the Sixth Directive.

35It must therefore be ascertained whether, as the Irish Government contends, the operators in question are entitled to the exemption provided for by Article 4(5) of the Sixth Directive in respect of the activity of providing access to roads on payment of a toll.

36The first paragraph of that article provides that bodies governed by public law are not considered to be taxable persons in respect of activities or transactions in which they engage as public authorities.

37As the Court has held on numerous occasions, it is clear from that provision, when examined in the light of the aims of the directive, that two conditions must be fulfilled in order for the exemption to apply: the activities must be carried out by a body governed by public law and they must be carried out by that body acting as a public authority (see, in particular, Case C-202/90 Ayuntamiento de Sevilla v Recaudadores de Tributos de las Zonas Primera y Segunda [1991] ECR I-4247, paragraph 18).

38As regards the latter condition, it is clear from the settled case-law of the Court of Justice (Joined Cases 231/87 and 129/88 Officio Distrettuale delle Imposte Dirette di Fiorenzuola and Others v Comune di Carpaneto Piacentino and Others [1989] ECR 3233, paragraph 16; Case C-4/89 Comune di Carpaneto Piacentino and Others v Ufficio Provinciale Imposta sul Valore Aggiunto di Piacenza [1990] ECR I-1869, paragraph 8, and Case C-247/95 Finanzamt Augsburg-Stadt v Marktgemeinde Welden [1997] ECR I-779, paragraph 17) that activities pursued as public authorities within the meaning of the first paragraph of Article 4(5) of the Sixth Directive are those engaged in by bodies governed by public law under the special legal regime applicable to them and do not include activities pursued by them under the same legal conditions as those that apply to private traders.

39In the light of that case-law, the Commission's argument (see paragraph 25 of this judgment) that a body acts 'as a public authority' only in respect of activities falling within the definition of public authority in the strict sense of that term, which do not include providing access to roads on payment of a toll, must be rejected.

40The Commission, whose legal argument has thus not been upheld by the Court, has not established, or even sought to establish, that in the present case the traders in question are operating under the same conditions as a private trader within the meaning of the case-law of the Court of Justice. In contrast, Ireland took pains to demonstrate that the activity in question was carried out by those traders under a special legal regime applicable to them within the meaning of the same case-law.

41Accordingly, it must be held that the Commission has failed to put before the Court the evidence required to substantiate the alleged failure to fulfil obligations as regards the condition relating to pursuance of an activity as a public authority.

42However, as also noted in paragraph 37 of this judgment, the non-taxable status provided for in Article 4(5) of the Sixth Directive requires that the activities be carried out not only as a public authority but also by a body governed by public law.

43In that regard the Court has held that an activity carried on by a private individual is not excluded from the scope of VAT merely because it consists in the performance of acts falling within the prerogatives of the public authority (Commission v Netherlands, cited above, paragraph 21, and Ayuntamiento de Sevilla, cited above, paragraph 19). The Court held, in paragraph 20 of the latter judgment, that it follows that if a commune entrusts the activity of collecting taxes to an independent third party the exclusion from VAT provided for by Article 4(5) of the Sixth Directive is not applicable. Similarly, the Court held in paragraph 22 of the judgment in Commission v Netherlands, cited above, that even assuming that in performing their official services notaries and bailiffs in the Netherlands exercise the powers of a public authority by virtue of their appointment to public office, they cannot enjoy the exemption provided for in Article 4(5) of the Sixth Directive because they pursue those activities, not in the form of a body governed by public law, since they are not part of the public administration, but in the form of an independent economic activity carried out in the exercise of a liberal profession.

44In the present case it is common ground that, in Ireland, the activity of providing access to roads on payment of a toll is carried out by traders governed by private law. Accordingly, the exemption provided for by Article 4(5) of the Sixth Directive is not applicable.

45However, the Irish Government considers that providing access to roads on payment of a toll represents a 'letting of immovable property' within the meaning of Article 13B(b) of the Sixth Directive, and as such is exempt from VAT under that provision.

46According to the Irish Government, since VAT is a tax on the supply of goods and services the question arises as to the nature of the principal item received as consideration for the payment. In the case of payment of a road toll the chief benefit conferred is the right to use the toll road, so that the transaction falls within Article 13B(b).

47Contrary to the submission of the Commission, the term 'letting' as used in Article 13B(b) does not, the Irish Government contends, imply a right of exclusive occupation. The requirement of a fixed duration for the right to use the goods in question is met in so far as the agreed period of time is that required for a driver to travel along the toll road or bridge. In that provision the concept of letting differs from that of leasing, the latter term implying a longer period of time than that implied by letting.

48The Irish Government considers that 'letting' within the meaning of Article 13B(b) of the Sixth Directive includes, as in Irish law, the granting of rights of way or easements over property. The Commission failed to take proper account of the concept of short term lettings and mistakenly concentrated on leasing of property.

49Finally, the fact that letting of immovable property does not always, contrary to the Commission's claim, require a classic landlord and tenant relationship is clear from the structure of Article 13B(b) itself, which lists four activities as being excluded from the exemption, clearly implying that the activities listed — which include the letting of sites for parking vehicles — are themselves forms of leasing or letting of immovable property.

50In the view of the Irish Government the nature of the transaction in paying for car parking is very similar to the transaction involved in paying a toll. Given the similarities and given that, according to the Sixth Directive, the letting of immovable property expressly includes the service offered for parking fees, it is reasonable to infer that the same applies to the services offered in exchange for a toll.

51It should be observed at the outset that according to settled case-law the exemptions provided for in Article 13 of the Sixth Directive have their own independent meaning in Community law (see Case 348/87 Stichting Uitvoering Financiële Acties v Staatssecretaris van Financiën [1989] ECR 1737, paragraph 11, Case C-453/93 Bulthuis-Griffioen v Inspecteur der Omzetbelasting [1995] ECR I-2341, paragraph 18, and Case C-2/95 SDC v Skatteministeriet [1997] ECR I-3017, paragraph 21). They must therefore be given a Community definition.

52It is also settled case-law that the terms used to specify the exemptions provided for by Article 13 of the Sixth Directive are to be interpreted strictly since they constitute exceptions to the general principle that VAT is to be levied on all services supplied for consideration by a taxable person (see, inter alia, Stichting Uitvoering Financiële Acties, cited above, paragraph 13, Bulthuis-Griffioen, cited above, paragraph 19, SDC, cited above, paragraph 19, and Case C-216/97 Gregg v Commissioners of Customs and Excise [1999] ECR I-4947, paragraph 12).

53In that regard, it must be observed that the wording of Article 13B(b) of the Sixth Directive does not shed any light on the scope of the terms 'leasing' or 'letting of immovable property'.

54The definition of 'letting of immovable property' under that provision is certainly wider in some respects than that enshrined in various national laws. For instance the article lists, in order to exclude it from the exemption, a contract for a hotel room ('the provision of accommodation... in the hotel sector'), which, in view of the overriding importance of the services provided by the hotelier and the control he retains over the use of the premises by patrons, is not considered, in some national laws, to be a contract to let.

55Leaving aside the specific cases expressly listed in Article 13B(b) of the Sixth Directive, however, the term 'letting of immovable property' must be construed strictly. As pointed out in paragraph 52 of this judgment, it constitutes an exception to the general VAT rules contained in that directive.

56Accordingly, that term cannot be considered to cover contracts in which, as here, the parties have not agreed on any duration for the right of enjoyment of the immovable property, which is an essential element of a contract to let.

57Where access to roads is provided, what interests the user is the possibility offered to him of making a particular journey rapidly and more safely. The duration of the use of the road is not a factor taken into account by the parties, in particular in determining the price.

58In the light of the foregoing considerations, it must be held that by failing to subject to VAT tolls collected for the use of toll roads and toll bridges as consideration for the service supplied to users, when that service is not provided by a body governed by public law within the meaning of Article 4(5) of the Sixth Directive, Ireland has failed to fulfil its obligations under Articles 2 and 4 of that directive.

The second claim

59The Commission observes that the Community rules on the collection of VAT own resources are contained in Regulation No 1553/89, which replaced with effect from 1 January 1989 Regulation No 2892/77, as amended.

60Where a taxable person carries out a transaction falling within Articles 2 and 4 of the Sixth Directive, the ultimate consumer of that supply of goods or services is liable to VAT, and the provisions relating to the payment of VAT own resources are correspondingly applicable to the Member State in which the VAT was collected.

61The Commission submits that where the Sixth Directive has been breached and the basis of assessment of VAT own resources thereby reduced it must be credited with the amount of own resources attributable to the tax which should have been collected, or suffer financial disadvantage which must be made good out of the gross domestic product. Such breaches therefore cause financial damage to the other Member States and consequently subvert the principle of equality.

62As regards interest for late payment the Commission notes that the Court has held that the default interest provided for by Article 11 of Regulation No 1552/89 is payable in respect of 'any delay', regardless of the reason for the delay in making the entry in the Commission's account (see, for example, Case 54/87 Commission v Italy [1989] ECR 385, paragraph 12).

63The Commission considers that it gave the Irish Government sufficient time to remedy the infringement and drew its attention to the fact that, from 31 March 1988, interest for late payment was due for the amounts of VAT own resources which had not been paid by Ireland as a result of its failure to levy VAT on road tolls.

64It must be observed that under Article 1 of Regulation No 1553/89 VAT own resources are calculated by applying the uniform rate to the base determined in accordance with that regulation and that under Article 2(1) of the regulation that base is determined from the taxable transactions referred to in Article 2 of the Sixth Directive.

65Since VAT was not levied on the tolls collected as consideration for the use of certain roads in Ireland, the corresponding amounts were not taken into account in determining the VAT own resources base, with the result that Ireland has thereby also breached the rules relating to the system of the Community's own resources.

66Moreover, the interest for late payment claimed by the Commission has its basis in Article 11 of Regulation No 1552/89. As the Commission rightly pointed out, the default interest is payable regardless of the reason for the delay in making the entry in the Commission's account (see, in particular, Commission v Italy, cited above, paragraph 12).

67The Irish Government objects, however, that Article 9 of Regulation No 1553/89 and Article 11 of Regulation No 1552/89 entitle the Commission to require additional payments and interest for late payment only if the infringement of Community legislation results in the payment of an insufficient amount by way of the Communities' own resources. That is not the case here.

68First, Ireland's contribution to the Communities' own resources was reduced from 1988 pursuant to Council Decision 88/376/EEC, Euratom of 24 June 1988 on the system of the Communities' own resources (OJ 1988 L 185, p. 24), and Council Decision 94/728/EC, Euratom of 31 October 1994 on the system of the European Communities' own resources (OJ 1994 L 293, p. 9), and the resulting total amount paid each year. Second, while for the years 1985 to 1987 there was a shortfall in Ireland's contribution to the Communities' own resources of IEP 39 686, Ireland seeks to set off against that sum the overpayment of its contribution in 1984, which, it claims, amounts to IEP 90 820, leaving a final balance of IEP 51 134 due to Ireland.

69In that regard, it is sufficient to note that whilst, as the Commission conceded at the hearing, the financial consequences of the correct application of the Sixth Directive must be assessed when this judgment is enforced, those consequences cannot, in any event, affect the finding made in paragraph 65 of this judgment that Ireland did not comply with the rules relating to the system of the Communities' own resources in connection with the tolls collected as consideration for providing access to certain roads.

70However, it is necessary to consider whether the extent of Ireland's obligation to make retrospective payments where appropriate under the rules relating to the Communities' own resources is affected by the fact that over seven years elapsed between the notification of the reasoned opinion and the bringing of this action.

71Despite the absence of a limitation period for the recovery of VAT in either the Sixth Directive (Case C-85/97 SFI v Belgian State [1998] ECR I-7447, paragraph 25) or in the legislation relating to the Communities' own resources, the fundamental requirement of legal certainty may have the effect of preventing the Commission from indefinitely delaying, in the course of a procedure for failure to fulfil obligations seeking the retrospective payment of own resources, the decision to bring proceedings (see, mutatis mutandis, Case 57/69 ACNA v Commission [1972] ECR 933, paragraph 32).

72In that regard, it should be borne in mind that, under Article 7(1) of Regulation No 1553/89, the Member States must send the Commission a statement of the total amount of the VAT own resources base for the previous calendar year, to which the uniform rate referred to in Article 1 is to be applied in order for VAT own resources to be determined.

73Under Article 9(1) of Regulation No 1553/89, any corrections, for whatever reason, to the statements referred to in Article 7(1) for previous financial years are to be made in agreement between the Commission and the Member State concerned. If the Member State does not give its agreement, the Commission, after re-examining the matter, is to take whatever measures it considers necessary for correct application of that regulation.

74Article 9(2) of that regulation provides:

'No further corrections may be made to the annual statement referred to in Article 7(1) after 31 July of the fourth year following the financial year concerned, unless they concern points previously notified either by the Commission or by the Member State concerned.'

75That provision does not refer to the situation in which the procedure for failure to fulfil obligations under Article 169 of the Treaty has been initiated, but demonstrates none the less the requirements pertaining to legal certainty in budgetary matters by ruling out any correction after four budgetary years have elapsed.

76It is clear that the same considerations of legal certainty justify the application by analogy of the rule laid down by that provision where the Commission decides to initiate the procedure for failure to fulfil obligations in order to seek retrospective payment of VAT own resources.

77Accordingly the Commission, which did not bring this action until 21 October 1997, can seek retrospective payment of VAT own resources with interest for late payment only as from the 1994 budgetary year.

78Having regard to all the foregoing considerations, it must be held that by failing to make available to the Commission as VAT own resources the amounts corresponding to the VAT which should have been levied on tolls collected for the use of toll roads and toll bridges, together with interest for late payment, Ireland has failed to fulfil its obligations under Regulations Nos 1553/89 and 1552/89.

Costs

Costs

79Under Article 69(2) of the Rules of Procedure, the unsuccessful party is to be ordered to pay the costs if they have been applied for in the successful party's pleadings. As the Commission has applied for an order for costs against Ireland and the latter has been unsuccessful in the main, Ireland must be ordered to bear the costs.

Operative part

On those grounds,

THE COURT

hereby:

1. Declares that by failing to subject to value added tax tolls collected for the use of toll roads and toll bridges as consideration for the service supplied to users, when that service is not provided by a body governed by public law within the meaning of Article 4(5) 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, and by failing to make available to the Commission of the European Communities as own resources accruing from value added tax the amounts corresponding to the tax which should have been levied on those tolls together with interest for late payment, Ireland has failed to fulfil its obligations under Articles 2 and 4 of that directive and under Council Regulation (EEC, Euratom) No 1553/89 of 29 May 1989 on the definitive uniform arrangements for the collection of own resources accruing from value added tax and Council Regulation (EEC, Euratom) No 1552/89 of 29 May 1989 implementing Decision 88/376/EEC, Euratom on the system of the Communities' own resources.

2. Orders Ireland to bear the costs.

Rodriguez Iglesias Moitinho de Almeida Sevón

Schintgen Kapteyn Gulmann Puissochet

Jann Ragnemalm Skouris Macken

Delivered in open court in Luxembourg on 12 September 2000.

R. Grass G.C. Rodriguez Iglesias

Registrar President

OPINION OF ADVOCATE GENERAL ALBER delivered on 27 January 2000 *

I — Introduction

1In these proceedings for failure to fulfil Treaty obligations the Commission claims that Ireland has failed to fulfil its obligations under the EC Treaty in so far as value added tax was not levied on charges for the use of roads and bridges (tolls) and corresponding payments of own resources with interest were not made. 1

2In Ireland there are two public bridges for the use of which a toll is charged. These are the East-Link and West-Link Bridges, East and West of Dublin respectively. The competent authorities may either collect the toll themselves or delegate collection to

* Original language: German.

p oints at issue, in the Member States against which no action has been brought either no tolls are charged or VAT is levied on tolls. As a lower rate of tax is levied in Spain, the Commission has also brought an action against Spain (Case C-83/99). a third party, which is then responsible for maintenance of the relevant infrastructure in return. However the toll collected is not subject to VAT in either case.

II — Pre-litigation procedure

3The Commission raised the question of VAT on tolls in a letter to the Irish authorities on 3 March 1987. The authorities replied by letter of 14 December 1987.

4The Commission sent a letter of formal notice on 20 April 1988, pursuant to Article 169 of the EC Treaty (now Article 226 EC), concluding that the failure to levy VAT on the tolls collected for the use of the East Link toll bridge in Dublin was contrary to Articles 2, 4(1), 4(2) and 4(5) of the Sixth VAT Directive. By letter of 17 October 1988 the Irish authorities asserted that the tolls in question constituted rent for immovable property and as such were exempt from VAT.

5By letter of 27 November 1987, the Commission pointed out to the Irish authorities that the VAT at issue had to be taken into account in the assessment of the contributions due to the Community budget under the system of own resources.

6By letter of 22 April 1988 the Irish authorities expressed the view that since VAT was not chargeable on the East Link toll bridge toll no further contributions to own resources were due.

7By letter of 31 January 1989 the Commission initiated proceedings for failure to fulfil Treaty obligations in relation to the Communities' own resources. The Commission took the view that Ireland had failed to fulfil its obligations under the Treaty in not making the necessary calculations to ascertain whether and to what extent own resources deriving from VAT were underpaid for the years 1984 to 1986 and in not making that information available to the Commission. The Commission therefore asked the Irish authorities to make the necessary calculations, pay the amounts due with interest for late payment from 31 March 1988 to the Commission and make the necessary calculations for every subsequent year until the infringement ended and forward them to the Commission.

8In their reply of 4 October 1989 the Irish authorities reiterated the arguments they had already put forward.

9By letter of 19 October 1989 the Commission delivered its reasoned opinion, which covered both the VAT and the own resources aspects of the dispute.

10As regards own resources the Irish Government replied by letter of 23 May 1999 and as regards liability to VAT by letter of 12 October 1990 in which it claimed that the exception provided for ' by Article 4(5) of the Sixth VAT Directive was applicable in this case.

11In its application lodged at the Court Registry on 21 October 1997 the Commission claimed that the Court should

(1) declare that in not subjecting tolls for the use of existing toll roads and toll bridges in Ireland to value added tax contrary to the provisions of Articles 2, 4(1), 4(2) and 4(5) of the Sixth VAT Directive and by failing to make available to the Commission the amounts of own resources and interest for late payment as a consequence of this infringement Ireland has failed to fulfil its obligations under the EC Treaty;

(2) order Ireland to bear the costs.

12The Irish Government contends that the Court should

(1) declare that in not subjecting tolls for the use of existing toll roads and toll bridges in Ireland to value added tax and by failing to make available to the Commission the amounts of own resources and interest for late payment Ireland has not failed to fulfil its obligations under the EC Treaty;

(2) order the Commission to bear the costs.

III — Legal background

1. The levying of VAT

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 (hereinafter 'the Directive')

13Article 2 of the Directive provides:

'The following shall be subject to value added tax:

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

14Under Article 4(1), (2) and (5) of the Directive:

'1. "Taxable person" shall mean any person who independently carries out in any place any economic activity specified in paragraph 2 whatever the purpose or results of that activity.

2. The economic activities referred to in paragraph 1 shall comprise all activities of producers, traders and persons supplying services including mining and agricultural activities and activities of the professions. The exploitation of tangible or intangible property for the purpose of obtaining income therefrom on a continuing basis shall also be considered an economic activity.

5. States, regional and local government authorities and other bodies governed by public law shall not be considered taxable persons in respect of the activities or transactions in which they engage as public authorities, even where they collect dues, fees, contributions or payments in connection with these activities or transactions.

However, when they engage in such activities or transactions, they shall be considered taxable persons in respect of these activities or transactions where treatment as non-taxable persons would lead to significant distortions of competition.

In any case, these bodies shall be considered taxable persons in relation to the activities listed in Annex D, provided they are not carried out on such a small scale as to be negligible.

Member States may consider activities of these bodies which are exempt under Article 13 ... as activities which they engage in as public authorities.'

15Article 13 provides as follows with regard to other domestic exemptions:

'Without prejudice to other Community provisions, Member States shall exempt the following under conditions which they shall lay down for the purpose of ensuring the correct and straightforward application of the exemptions and of preventing any possible evasion, avoidance or abuse:

(a)...

(b) the leasing or letting of immovable property excluding:

1. The provision of accommodation... in the hotel sector..., 2. The letting of premises and sites for parking vehicles;

3. Lettings of permanently installed equipment and machinery;

4. Hire of safes.

...'

Z. Own resources

(a) Council Regulation (EEC, Euratom) No 1553/89 of 29 May 1989 on the definitive uniform arrangements for the collection of own resources accruing from value added tax 5

16Article 1 provides:

'VAT resources shall be calculated by applying the uniform rate, set in accordance with Decision 88/376/EEC, Euratom, to the base determined in accordance with this Regulation.'

17Article 2(1) provides:

'The VAT resources base shall be determined from the taxable transactions referred to in Article 2 of Council Directive 77/388/EEC... with the exception of transactions exempted under Articles 13 to 16 of that Directive.'

(b) Council Regulation (EEC, Euratom) No 1552/89 of 29 May 1989 implementing Decision 88/376/EEC, Euratom on the system of the Communities' own resources

18Article 11 provides:

'Any delay in making the entry in the account referred to in Article 9(1) shall give rise to the payment of interest by the Member State concerned at the interest rate applicable on the Member State's money market on the due date for short-term public financing operations, increased by two percentage points. This rate shall be increased by 0.25 of a percentage point for each month of delay. The increased rate shall be applied to the entire period of delay.'

(c) Council Decision 88/376/EEC, Euratom, of 24 June 1988 on the system of the Communities' own resources

19Under this decision the missing income from VAT own resources is to be made up by own resources deriving from gross domestic product in order to provide the rest of the financing, which results in a redistribution of the burden to the detriment of the other Member States.

IV — Arguments of the parties

20The Commission points out first that the system of tolls in Ireland is regulated first by the Local Government (Toll Roads) Act 1979, and subsequently by the Roads Act 1993. 8 Under this legislation a Road Authority may charge tolls for the use of certain roads. The amount of the toll is set by that authority. The powers of road authorities are exercised by local authorities or in the case of national roads by the National Roads Authority. A Road Authority may, with the consent of the Minister for the Environment, enter into an agreement with another person by which the latter undertakes to finance a new road and to operate a toll system on it. Such an agreement can cover some or all of the costs of constructing and maintaining the road.

21The Commission states further that operating a road and charging a toll for its use is an example of the exploitation of tangible property for the purpose of obtaining income therefrom on a continuing basis. Under Article 4(1) of the Directive such an operation is an economic activity carried out by a taxable person.

22The question whether there is an economic activity must be appraised objectively in the light of the actual economic situation. In the light of the actual circumstances it must, therefore, be considered that there is an economic activity in the present case. It is carried out for consideration and there is a direct link between the service rendered and the consideration received in the form of the toll, since payment is made by the user every time he wishes to use the road in question.

23As the terms 'supply' and 'economic activity' must be interpreted in accordance with Community law, the fact that a private operator carries out activities which contribute to the general good does not affect the position taken by the Commission.

24Contrary to the view of the Irish Government, there can be no question of an exception under Article 13B(b), under which the leasing or letting of immovable property is exempt from VAT. The Commission argues that there are three essential elements in the definition of leasing: first, there must be an identified area with space which is occupied, second, it must be for an agreed period of time and, third, it must be in exchange for an agreed payment by the occupier to the owner. In the case of travel along a road or over a bridge, however, there is no time element. Moreover, a user cannot use an identified area and exclude others from use of that area. Payment of a toll does not entitle the user to the exclusive use of property but merely gives him the right to travel on a certain stretch of road. The terms 'leasing' and 'letting' must be given their ordinary meaning. Both imply a relationship between landlord and tenant or at least an element of possession of the property. As the provisions of Article 13B(b) constitute an exception to the rule of liability to tax, it must be construed narrowly.

25Nor can there be any question of an exemption under Article 4(5)(1) of the Directive in the present case, as the operation of infrastructure on payment of a toll is not an activity of a body governed by public law which is incumbent upon it as a public authority. Since this Article also constitutes an exception to the definition of taxable person, it, too, must be construed narrowly.

26The Commission observes that the Irish legislation allows businesses not covered by public law to operate a road and collect a toll. In such circumstances the businesses are private economic operators.

27Moreover, only bodies governed by public law are eligible for a tax exemption and then only if they are acting as public authorities.

28As economic considerations arise for the user of a road where a toll is levied (price of toll, savings of time and fuel consumption), an economic decision is made, with the result that the provision of a road and collection of a toll is not a specific duty discharged in exercise of public authority. Even if the competent authorities continue to supervise the business operating the infrastructure and even fix the price of the toll, the economic activity is not carried out by public authorities in the exercise of public authority. These are economic activities which fall within the private sector. In the present case the only relevant fact is that the supply of infrastructure on payment of a toll constitutes a taxable transaction.

29As regards own resources the Commission therefore concludes that the wrong basis of assessment was chosen through failure to levy VAT on tolls, with the result that inequalities between the Member States of the Community in respect of the collection of own resources have arisen.

30However, the Irish Government takes the view that those responsible for collecting the toll are not taxable persons within the meaning of the Directive. Under Article 4(5) activities engaged in as public authorities are exempt from tax even when they are carried out for consideration. In the present case, it is argued, the Irish authorities are acting as public authorities in building roads and bridges for public use. Funding and maintaining such infrastructure is a public responsibility. Under the applicable Irish legislation such funding can be provided by levying a toll. However, that does not alter the fact that the activity is governed by public law.

31Furthermore, the Irish Government considers that the supply of certain infrastructure on payment of a toll constitutes leasing and that the rules on tax exemption under Article 13B(b) therefore apply.

32The essential elements of leasing listed by the Commission are not derived from the Directive. In the present case there is an identified area — the road or bridge to be crossed — which is made available to the user for an agreed period of time — the time taken to travel along the road or bridge. 9 For this rental the user pays consideration — the toll — the price of which is fixed by a public authority.

33The transaction does not grant the user any right of possession but a classic landlord and tenant relationship is not required as the other activities listed in Article 13B(b) demonstrate. These are not typical examples of leasing either so there is no reason why the present case should not be covered by the term too.

34As regards the exemption from VAT for public bodies acting in exercise of public authority the Irish Government contends that the regulation of roads and bridges falls entirely within the remit of public authority. The construction and maintenance of such infrastructure is the responsibility of the local or national authorities. Provision can be made for the levying of a toll on national roads. When construction and maintenance work on roads and bridges is delegated the authorities can allow the allocation of all or part of the proceeds of the tolls to a third party. However, those authorities alone are entitled to charge tolls, and they are therefore levied in exercise of public authority.

35A public authority is always at the root of the activity in question. The third parties authorised to collect the tolls are not acting independently. The supply of infrastructure for public use is and remains an exercise of public authority by public bodies. The user of the infrastructure pays the toll because the public bodies have a right to it in exchange for the provision of infrastructure.

36If, in the present case, tolls are not subject to VAT, there can be no question of Ireland's contributions to the Community's own resources being too low. The Commission's action is therefore unfounded in respect of this claim too.

V — Appraisal

1. Levying of VAT on tolls

37In accordance with the structure of the Directive, it must first be ascertained whether there is a taxable transaction within the meaning of Article 2 of the Sixth VAT Directive. That requires a supply of services in return for consideration. Next, it must be ascertained whether that transaction was carried out by a taxable person and, if so, whether it was an economic activity.

(a) Supply of services for consideration

38The supply of services consists here in the provision of infrastructure.

39Those services are supplied in return for consideration — the toll levied. On the question whether services are being provided for consideration the Court has ruled that, for the provision of services to be taxable, there must be a direct link between the service provided and the consideration received. 1

40There is such a direct link in that a toll is paid for the provision of infrastructure, the amount of which, in turn, depends on the type of vehicle concerned and the length of the road.

41The toll itself is not a tax, as a tax is a payment of money, which is not made in return for a particular service, and which is imposed by a body governed by public law, in order to generate revenue, on all those who meet the statutory conditions for liability. Since, however, in the present case, there is a specific service provided in return, in the shape of the supply of certain parts of the roads infrastructure, the money paid is a fee which must be seen as consideration for a service provided.

42There is thus a supply subject to value added tax within the meaning of Article 2 of the Sixth VAT Directive.

(b) Taxable persons

43Under Article 4(1) and (2) of the Directive, a taxable person is any person who independently carries out any economic activity — and that includes all activities of producers, traders or persons supplying services.

44Under Article 4(5)(1) of the Directive, States, regional and local government authorities and other bodies governed by public law are not to be considered taxable persons in respect of the activities or transactions in which they engage as public

collect dues, fees, contributions or other payments in connection with these activities or transactions.

(aa) State activity

45According to the case-law of the Court, two conditions must be fulfilled in order for public bodies to be treated as non taxable persons: the activities must be carried out by a body governed by public law and they must be carried out by that body acting as a public authority.

46This means, first, that not all activities of bodies governed by public law are automatically exempt from tax, but only those which also serve to discharge a specific responsibility in the exercise of public authority. Second, an activity carried on by a private individual is not exempted from VAT merely because it consists in carrying out acts falling within the prerogatives of the public authority.

47The subject-matter or purpose of the activity of the public body does not determine whether activities are carried out as public authorities. According to the case-law of the Court, it is the way in which the activities are carried out that determines to what extent public bodies are to be treated as non-taxable persons.

48The Court has thus ruled that the bodies governed by public law referred to in the first subparagraph of Article 4(5) of the Sixth Directive engage in activities as public authorities when they do so under the special legal regime applicable to them. On the other hand, when they act under the same legal conditions as those that apply to private traders, they cannot be regarded as acting as public authorities.

49Since, under Article 6(1) of the Sixth VAT Directive, even activities carried out in pursuance of the law are taxable, it is clear that the mere fact that an activity falls within the remit of public law is not sufficient to fulfil the requirements for VAT exemption in Article 4(5)(1). As that provision constitutes an exception to the definition of taxable person, it must be interpreted strictly. Thus, only those activities of public authorities which constitute the essential core of State activity can be considered exempt from VAT. This is also confirmed by Article 4(5)(3), which refers to the activities listed in Annex D (see above at point 14), in respect of which even bodies governed by public law are liable to VAT.

50The planning and construction of roads, bridges and tunnels are State responsibilities which can only be discharged by bodies governed by public law. Such activities concern an essential part and thus the core of public responsibilities. They can be regarded as the provision of essential facilities. If the State carries out such activities, it must be considered to do so in the exercise of public authority.

51It is true that the provision of roads is classified as an activity subject to VAT, though not expressly so as in the case of the supply of water, gas and electricity in Annex D. In reality, the provision of road infrastructure without charge must be seen as an activity of the State. The question remains whether, conversely, the whole network of roads built with taxpayers' money in discharge of a State responsibility can be operated by private economic operators on payment of a toll which is collected from everyone. In any event, making available a stretch of road in a manner which is selective, inasmuch as payment is required, cannot be seen as an activity performed in the exercise of public authority. The levying of a toll is, indeed, also possible in connection with a State activity and, in itself, does not give rise to tax liability, as Article 4(5)(1) expressly confirms. It should, however, be borne in mind that, in the present case, the road user has a choice between using the toll-free road infrastructure and using toll roads. In providing the toll-free road network, the State responsibility has, in any event, been discharged and the provision of additional stretches of road on payment of a toll must be viewed as a purely private economic activity. Anyone who needs planning permission which is subject to a fee has no option but to pay the fee. Anyone who is following a course of study for which everyone must pay fees has no other means of achieving the same goal, i.e. the relevant qualification. However, in the present case the user has a genuine choice between two possibilities — although one may be less convenient and slower — in order to achieve the same goal. The toll road network is made available to everyone who is prepared to pay, but only to them. This must be viewed as selection, which is alien to State activity. Tolls are levied principally for economic and financial reasons. Thus, the provision of a limited stretch of road on payment of a toll cannot be regarded as a State activity.

52Article 4(5)(1) is, therefore, not applicable to the present case, since the provision of infrastructure on payment of a toll cannot be regarded as an activity carried out in the exercise of public authority. The bodies empowered to collect the tolls must, therefore, be considered to be taxable persons.

(bb) Economic activity

53As I have already pointed out, under Article 4(1) of the Directive any person who independently carries out any economic activity is deemed to be a taxable person.

54Article 4(2) of the Sixth VAT Directive defines economic activity as 'all activities of producers, traders and persons supplying services'.

55The Court has consistently held that the scope of the term 'economic activities' is very wide, and that the term is objective in character, in the sense that the activity is considered per se and without regard to its purpose or results. 6

56Under this wide definition of economic activity it is not necessary for services to be primarily or exclusively orientated towards the market or economic life. It is sufficient that they are actually connected with economic life in some way or other. In the present case, the road infrastructure is provided, on payment of a toll, by the competent authorities or by third parties to whom the activity is delegated.

57Even if such delegation is subject to public law and the toll roads form part of the public roads network, this is of no relevance in determining whether there is an economic activity. Under Article 6(1) of the Sixth VAT Directive taxable transactions may include the performance of services in pursuance of an order made by or in the name of a public authority or in pursuance of the law. The objective nature of the definition of economic activity also calls for the classification of the activity in this case as an economic one as the activity itself must be considered, regardless of its purpose or result.

58Consideration of the actual economic situation is a fundamental criterion for the application of the common VAT system. In the present case this means that given parts of the roads infrastructure are made available to road users on payment of a toll. As this activity is thus also carried out by the relevant bodies to generate revenue, in order to cover expenditure on materials and at the same time earn an income, it is clear that there is an economic activity in the case under consideration.

(c) Letting

59Since, in the light of the foregoing, it must be considered that, as a rule, the body empowered to collect tolls is a taxable person, the question which now falls to be answered is whether the activity in question may be exempt from tax under Article 13B(b).

60Under that Article the provision of infrastructure on payment of a toll would be exempt from tax if it constituted the letting of immovable property.

61There is no definition of this term under Community law in the relevant legislation. To clarify its meaning we must, therefore, look at the context in which it is used, taking account of the general structure of the Sixth VAT Directive.

62It is clear from the spirit and purpose of the Directive and the wording of Article 2 in particular that the fundamental principle of the Directive is that all supplies of goods and services made by a taxable person for consideration are subject to VAT if they are not expressly exempted. The provisions regarding exemption are therefore to be interpreted narrowly as they are an exception to the fundamental principle of the Directive.

63This means that the term 'letting of immovable property' must be defined according to its usual meaning. Not every contract which has some characteristics of a letting is automatically covered by the term. This would constitute a wide interpretation of the exemptions from tax which is precisely what is not intended. The requirement is, therefore, that the characteristics of a letting should predominate in the contract.

64The provision of roads infrastructure on payment of a toll does not, however, fulfil that condition. It is true that an identified area of space (the road travelled along) is made available to the user for an agreed period of time (the length of the journey) in exchange for payment. However, the characteristics of a letting do not predominate here, as the user's priority is to travel along a given stretch of road as quickly and as safely as possible. The use of the property, on the other hand, is of secondary importance.

65In the present case — according to the argument of the Irish Government — a bridge or a tunnel is let not only to one person but to several people at the same time. Such people have a priori no exclusive right of possession over the bridge. This is not a situation in which it is possible for several people to be tenants of the same property. Car drivers do not want to let the bridge jointly and be jointly and severally liable for the rent as in the case of shared accommodation.

66There is, further, no letting here since the user has no protection from unauthorised use by third parties, nor can he make general use of the property; his right to use the property is limited to the possibility of travelling along the road.

67The chief purpose of the 'contract' between the parties is not so much the use of the property as the one-time provision of a service using that property. For car drivers the brief use of the property is in fact of secondary importance, as their priority is to reach their destination quickly and safely.

68The Irish Government's argument that the activities listed in Article 13B(b) show that 'letting' can be construed widely cannot be accepted. The examples given are not tenancies 'widely construed'. They may be special forms of tenancy; however they do not depart radically from the criteria for the general definition of tenancies. Even if this were the case, the conclusions drawn by the Irish Government regarding tax exemption would not follow. The four 'specific tenancies' are not mentioned in order to show that 'letting' can be construed widely, but because — as 'an exception to the exception' constituted by the tax exemption for letting — they are subject to VAT. Precisely because letting — as an exception to the rule — is not subject to VAT, it is to be interpreted narrowly, as explained in points 61 and 61.

69In the present case there is, therefore, no VAT-exempt letting of property.

(d) (In the alternative) Distortion of competition

70Under Article 4(5)(2) States, regional and local government authorities and other bodies governed by public law are considered taxable persons even in respect of the activities or transactions in which they engage as public authorities, where treatment as non-taxable persons would lead to significant distortions of competition. In the light of the observations made above, this sub-case should not require analysis as such activity must be considered not to form part of State activities. The following analysis is thus given only in the alternative.

71A distortion of competition in the above sense would arise where a non taxable State body was competing for the supply of the same services with a taxable private person and was therefore able to offer its services at a lower price because of the tax exemption. In the provision of road infrastructure such as we are concerned with here there is, however, no competitor covered by private law, so that there can be no competition either.

72The examples of distortions of competition given by the Commission do not stand up to scrutiny here. First, the scope of the Directive — as is clear from a number of provisions — is limited to transactions at national level. There is no breach of the duty to treat other nationals equally in the present case. Second, the cases of distortion mentioned — no right to deduct input tax on the one hand and reduced costs on the other — are not the result of waiving tax or charging tax as the case may be, but of the misapplication of the law. Following clarification by the Court, the Member States will certainly levy VAT in a uniform manner. (The same will then be true of payments to own resources.) If the Commission's argument is taken to its logical conclusion, distortions of competition would most of all prejudice those countries where no road tolls are levied at all.

73There are thus no distortions of competition within the meaning of Article 4(5)(2) which would justify treatment as a taxable person. However, as I explained in points 37 to 68, that is not the key issue. In the present case there is a supply subject to VAT because the levying of the toll is not a State activity.

(e) Interim conclusion

74Ireland has therefore failed to fulfil its obligations under the EC Treaty in not subjecting tolls for the use of bridges and tunnels to VAT, contrary to Articles 2 and 4 of the Sixth VAT Directive.

2. Own resources

75Under Article 2(1) of Regulation No 1553/89, the VAT resources base is to be determined from the taxable transactions referred to in Article 2 of the Directive. Contributions to own resources are then calculated by applying a fixed uniform rate to this base.

76Since, in the present case, services were supplied by taxable persons, VAT should have been levied on the toll. However, as this did not happen, the relevant amounts for fixing the VAT resources base could not be taken into account.

77This constitutes a breach of Community provisions on the payment of own resources from VAT. It is of no relevance that the recalculation of contributions to own resources would lead to financial imbalance in the Community. Under the relevant Community legislation it is only important for those own resources to be calculated according to the correct base and the payments required of the taxable persons (by the Member State) to be established. It is thus the duty of the Member States to make the necessary calculations, communicate the result to the Commission and pay the resources due.

78The claim for interest is based on Article 11 of Regulation No 1552/89, according to which any delay in making the entry in the account is to give rise to the payment of interest. According to the case-law of the Court, the reason for the delay is immaterial.

3. Temporal limitation on the effects of the judgment

79Once it is established that Ireland has failed to fulfil its obligations under the EC Treaty, the question arises whether the Commission is also entitled to enforce the claims it has against Ireland as a result in respect of the whole period concerned.

80In proceedings for failure to fulfil obligations, Member States are required to take all necessary steps to remedy the failure to fulfil obligations, where the action is well founded. However, since the application is for a declaration, the Court cannot order the defendant State to remedy the breach or cancel or alter the contested measures.

81Consequently the Court is not empowered to make a formal order that Ireland remedy the unlawful situation as regards the levying of VAT. However, in the course of the proceedings for failure to fulfil Treaty obligations, the Court can clarify the obligation of Ireland to remedy the breach of the Treaty.

82The practical implications of Ireland's obligation to remedy its failure to fulfil Treaty obligations and the effect of the length of the proceedings must therefore be considered.

83Since, under Article 155 (now Article 221 EC) and Article 169 of the EC Treaty, the Commission is bound to bring proceedings in respect of every failure to fulfil Treaty obligations of which it becomes aware, it has a fundamental duty to bring proceedings. However, it has a certain discretion, particularly as regards the time and manner of implementing the various stages of the procedure under Article 169. Despite its fundamental duty to bring proceedings, the Commission should always strive to enable Member States to restore conformity with the Treaty in the usual manner. The earliest possible time at which an action can be brought is on expiry of the period prescribed in the reasoned opinion. There is no general upper time-limit for bringing an action before the Court of Justice. It is, therefore, for the Commission to judge, on expiry of the time-limit set, when to bring an action in the wake of the reasoned opinion. However, in extreme cases, where the Commission waits a long time before bringing an action and takes no other steps against the Member State, the possible objection that the right of action has been forfeited and the admissibility of the action thereby affected cannot be ruled out entirely. Nevertheless, the case-law of the Court tends to reject the idea that the Commission's right of action can be forfeited.

84Nor can the claims of the Communities be considered to be time-barred in the present case. First, there are no provisions of Community law regarding limitation of actions which would be applicable and, second, it is not possible to apply the national rules regarding the limitation of actions for tax debts. To fulfil its purpose, a limitation period must be established in advance. As it constitutes a plea it must be properly raised, which it was not in the present case. As no submissions were made in that connection there is no need to discuss this point further. Moreover, no direct claim can be made for payment of resources in the course of an action for failure to fulfil Treaty obligations.

85However, the Community's claims for payment of contributions to own resources could have lapsed by failing to meet other time-limits.

86For reasons of legal certainty, it might be necessary, in the present case, to limit in time the effects of a declaration of failure to fulfil Treaty obligations as regards the correction of annual statements. The possibility of invoking the principle of legal certainty in the absence of a limitation period has been acknowledged by the Court of Justice in its case-law.

87The Treaty makes no express provision for a temporal limitation on the effects of judgments in proceedings for failure to fulfil Treaty obligations. However, that is not in fact necessary since a judgment in proceedings for failure to fulfil Treaty obligations is of a declaratory nature and is generally intended to remedy (for the future) a situation which is contrary to the Treaty. This type of proceedings does not concern the validity of a particular decision as does an action for annulment, the effects in time of which can be limited under the second paragraph of Article 174 of the EC Treaty (now Article 231 EC). An action for failure to fulfil Treaty obligations does not as a rule seek compensation for damage in individual cases, as cases subject to the rule regarding limitation periods in Article 43 of the EC Statute of the Court of Justice do. Rather, proceedings for failure to fulfil Treaty obligations seek a declaration of principle on the content of the rules of Community law. It is in the interests of legal certainty for the Court of Justice to make a declaration regarding the content of the rules in a dispute between the Commission and a Member State. The mere passage of time since the conclusion of the pre-litigation procedure does not alter this principle. Should events during that time diminish the interest of a party in a declaration, this might result in the inadmissibility of the action, but would not prejudice the claim for a declaration as such, which could be made afresh to the Court at any time.

88However, in the present case, there is a claim by the Communities for payment from the defendant Member States attached to the declaration of failure to fulfil Treaty obligations. The financial implications of this also require careful consideration from the point of view of legal certainty.

89On the face of it, the fact that the Court has consistently held that 'certainty and foreseeability are requirements which must be observed all the more strictly in the case of rules liable to entail financial consequences' constitutes an argument against temporal limitation. Weighing up considerations of legal certainty diminishes such certainty and foreseeability. However, it must also be said that the considerable delay by the Commission in instituting proceedings for failure to fulfil Treaty obligations cannot be reconciled with the requirements of certainty and foreseeability either.

90According to the case-law of the Court, a dispute between the Commission and a Member State over the collection of own resources may not cause the financial equilibrium of the Community to be disrupted. In the present case, a temporal imitation on correction could have the result that some Member States paid resources to the Community in accordance with Community law, whilst others were exempted from payment. However, on that point, it must be observed that the Member States which have levied VAT and paid a share of it to the Community have not suffered a disadvantage. They, after all, retain a proportion of the VAT which is greater than that paid to the Community.

91On the other hand, retrospective collection of VAT on fees paid for the use of roads must be ruled out for both practical and legal reasons. In a case such as the present one retrospective collection of VAT would also be ruled out under national law for reasons relating to the protection of legitimate expectations. Quite apart from that, the practical consequences of retrospective collection of VAT would be unreasonable in the case of business traffic as the tax debtors who might have to be tracked down are generally not those who pay the tax included in the prices.

92Only those Member States which were already making back payments, without having levied VAT beforehand, would be at a disadvantage. It must be assumed, however, that such payments were made subject to the requisite correction to the annual statement. If this is not possible, the Member States in question may request reimbursement of the back payments.

93It is clear from the time-limit in Article 9(2) of Regulation No 1553/89 that Member States are not intended to be exposed for more than four years to the risk of paying to the Community a percentage of VAT which has mistakenly not been levied. On the other hand, Member States have in principle no protection if they have notice of a clear objection of the Commission before expiry of the time-limit. It is the responsibility of the Member State concerned if it does not act on an objection by the Commission and, for example, fails to levy VAT generally. Having notice of the objection it is able to assess in principle the obligations which arise from the VAT Directive and proceed accordingly.

94However, if the Member States have reasonable grounds for disputing the Commission's view as to whether certain transactions are subject to VAT or not, the practical arrangements for the correction procedure, and in particular their application by the Commission in the present case, may have unreasonable consequences. As the Community is a Community governed by the rule of law, the Member States have, as a matter of principle, a right to have a dispute over the content of the rules of the VAT Directive brought before the Court of Justice and decided by it within a reasonable time.

95Moreover, the Member States cannot settle the matter themselves, if the proceedings for failure to fulfil Treaty obligations stagnate, as here, in the pre-litigation phase. The Commission is not bound to bring an action and the Member State cannot challenge the reasoned opinion. Taken together, these factors could be an incentive to circumvent proceedings for failure to fulfil Treaty obligations. However, such conduct on the part of the Commission would be contrary to the spirit of the correction procedure.

96In the context of the Commission's relationship to the Member State, it must be considered that the previous financial years are closed and no correction is to be made.

97The period to which the Commission's action relates does not appear to be clearly defined. The application merely seeks a declaration of failure, without citing a particular period. The application must be considered in the light of the apparent aim of the request for legal protection: in other words, the purpose of the action is to be determined in the light of the grounds stated.

98It is clear from the Commission's letter of formal notice of 20 April 1988 amongst the documents on the Court file that the Commission's claims relate to the period from 1984 until cessation of the alleged infringement. It must therefore be assumed that this is the period at issue in the Court action too. Although the Commission took no further action in respect of subsequent years between the end of the pre-litigation procedure and the bringing of the action, it must be assumed that its intention was to put an end to the infringement with all that this implied for the subsequent years. The extent to which the financial years since 1984 are now closed so that the annual statements cannot now be corrected must therefore be examined.

99The first part of Article 9(2) of Regulation No 1553/89 provides that no further corrections may be made to the annual statement after 31 July of the fourth year following the financial year concerned, that is to say, after 43 months. The annual statement for the 1984 financial year could accordingly no longer be corrected after 31 July 1988. The equivalent calculation is to be made for subsequent years. It would, therefore, no longer be possible for the Commission to collect own resources for those years.

100However, it is not clear how the exception in the second part of Article 9(2) is to be understood. It states, on the subject of the annual statements to which no corrections may be made: 'unless they concern points previously notified either by the Commission or by the Member State concerned.' For the 1984 to 1990 financial years, the underlying issues and various legal points which also underlie this application were discussed with Ireland.

101There is a strong case for interpreting the second part of Article 9(2) to mean that exceptions to the 43-month time-limit are only to be allowed if those concerned have continued in the intervening period to make an effort to solve the problems raised. However, if the proceedings come to a lengthy and unwarranted standstill, it would be contrary to the spirit and purpose of the provision to continue to apply it. In the present case there was not sufficient further dialogue in the years between 1990 and 1997 to enable a solution to the problems to be found. In response to questioning in the oral procedure the Commission stated that it regularly raised the problem of own resources with the Member States concerned and that there was an ongoing dialogue on the question of levying VAT. However, this cannot be viewed as sufficient to have enabled an amicable agreement to be reached. That was not possible because of the stance taken by the parties. It should also be borne in mind that a compromise solution was not possible either because of the mutually exclusive alternatives inherent in the legal position.

102Whilst the objective of this provision is to grant an extension of the time allowed in complex cases raising many problems, the parties must be seen to be making an effort to reach a solution; otherwise the Commission could circumvent the 43- month time-limit under the first part of Article 9(2) by routinely raising objections to the Member States' annual statements. It would then be able to investigate the circumstances for an unlimited time and postpone the closure of the financial year indefinitely. However, that would be neither desirable on economic grounds, nor compatible with the principle of legal certainty. The Commission would be able, without having to justify it, to circumvent the requirements of the first part of Article 9(2) according to which the time-limit for the closure of the annual statements is 31 July of the fourth year following the relevant financial year.

103As the provisions of Article 9(2) do not impose a limitation period, it is of no relevance that the Member State has not raised a plea that the action is time-barred. Only claims can be out of time. However, Article 9(2) does not provide for any claims, but merely regulates the time allowed for the correction of annual statements.

104It can therefore be considered that the length of time between the pre-litigation procedure and the bringing of the action gave rise to a legitimate expectation on the part of Ireland that the Commission would observe the time-limits in the procedure for correction of annual statements.

105Even if one were to take the view that the pre-litigation procedure itself had the effect of interrupting the running of the time allowed, such interruption cannot continue beyond the 43-month time-limit. As there were more than four years — seven to be exact — between the last exchange of letters in the pre-litigation procedure and the bringing of the action, an argument on the basis of the interruption of the time allowed cannot be sustained.

106The principle of the protection of legitimate expectations and the general timetable resulting from the 43-month time-limit for the correction of annual statements mean that the collection of contributions to own resources must be limited to the four years before the bringing of the action. In the present case, since the Commission's action was lodged at the Court of Justice on 21 October 1997, that means that the financial years since 1994 are not yet closed and that corrections are still possible.

107As the claim for payment of the contributions to own resources was not the subject of the application as such, but arises indirectly from the failure to fulfil Treaty obligations, the remainder of the application cannot be dismissed despite the partial expiry of time-limits — which indirectly amounts to a partial success for Ireland. The same applies to the decision as to costs.

VI — Costs

108Under Article 69(2) of the Rules of Procedure, the unsuccessful party is to be ordered to pay the costs if they have been applied for in the successful party's pleadings. The Commission has asked for Ireland to be ordered to pay the costs. Although the cannot be realised through this action. The claim for payment of contributions to own subject at issue in the present case is only resources has partially exceeded the time- the declaration of conduct contrary to the limits, this has no implications for a costs Treaty. As Ireland has essentially been order as this claim is only a consequence of unsuccessful, it should be ordered to pay the declared failure to fulfil obligations and the costs.

G — Conclusion

109For the foregoing reasons I therefore propose that the Court should rule as follows:

(1) In not subjecting tolls for the use of existing toll roads and toll bridges in Ireland to value added tax, contrary to Articles 2 and 4 of the Sixth Council Directive 77/388/EEC of 17 May 1977 and by therefore failing to make available to the Commission the relevant amounts of own resources, Ireland has failed to fulfil its obligations under the EC Treaty; however, the Commission is entitled to collect the own resources retrospectively and claim interest for late payment only as from 1994 (the financial year).

(2) Ireland shall bear the costs of the proceedings.

Notes

(1) The Commission has also brought actions against France, the United Kingdom, the Netherlands and Greece on the same grounds: see Cases C-358/97, C-359/97, C-408/97 and C-260/98. Unlike the other defendant Member States, the Netherlands has made the corresponding amount of own resources available to the Commission pending clarification of the

(2) OJ 1977 L 145, p. 1.

(3) Annex D lists a total of 13 types of activity, including telecommunications, the supply of water, gas, electricity, pott and airport services, and the running of trade fairs and exhibitions.

(4) Article 13(A) lists 17 exemptions for certain activities in the public interest. Thus inter alia the following are exempt from tax: the supply of services by the public postal services, hospital and medical care, the supply of services and of goods closely linked to welfare and social security work and to the protection of children and young persons, supply of services for their members by non-profit-making organisations with aims of a political, trade-union, religious, patriotic, philosophical, philanthropic or civic nature, and activities of public radio and television bodies other than those of a commercial nature. Article 13(B) provides for further exemptions for insurance and reinsurance transactions, certain credit activities and — with four exceptions — the leasing or letting of immovable property.

(5) OJ 1989 L 155, p. 9.

(6) OJ 1989 L 155, p. 1.

(7) OJ 1988 L 185, p. 24, partly repealed or amended by Council Decision 94/728/EC, Euratom, of 31 October 1994 on the system of own resources of the European Communities, OJ 1994 L 293, p. 9.

(8) The rules in force since 1979 were reproduced in the 1993 provisions. The Commission therefore assumes that the legal position has been the same since 1979.

(9) The term 'leasing' also covers situations in which a short period of time is involved.

(10) For the wording of subparagraph (b) see above at point 15.

(11) Case 102/86 Apple and Pear Development Council v authorities. This is so even where they Commissioners of Customs and Excise [1988] ECR 1443, paragraph 11.

(12) Case 107/84 Commission v Germany [1985] ECR 2655, Case 235/85 Commission v Netherlands [1987] ECR 1471 and Joined Cases 231/87 and 129/88 Carpaneto and Others [19891 ECR 3233, paragraph 12.

(13) Commission v Netherlands, cited above at footnote 12, paragraph 21.

(14) Carpaneto, cited above at footnote 12, paragraph 15.

(15) Carpaneto, cited above at footnote 12, paragraph 16.

(16) Case 235/85, cited above at footnote 12, Case 348/87 Stichting Uitvoering Financiële Acties v Staatsecretaris van Financiën [1989] ECR 1737, paragraph 10, and Case C-186/89 Van Tiem [1990] ECR I-4363, paragraph 17.

(17) Opinion of Advocate General Lenz of 12 February 1987 in Case 235/85, point 22, and judgment in that case, cited above at footnote 12.

(18) Case C-260/95 DFDS [1997] ECR I-1005, paragraph 23.

(19) Case 54/87 Commission v Italy [1989] ECR 385, paragraph 12.

(20) Case 7/71 Commission v France [1971] ECR 1003, paragraphs 5 and 6.

(21) Case C-317/92 Commission v Germany [1994] ECR I-2039, paragraph 4, and Case C-422/92 Commission v Germany [1995] ECR I-1097, paragraph 18 and the references contained therein.

(22) Case C-96/89 Commission v Netherlands [19911 ECR I-2461, paragraphs 15 and 16.

(23) Footnotes 21 and 22.

(24) Under Article 7(1) of Regulation No 1553/89, before

(31) July the Member States are to send the Commission a statement of the total amount of the VAT resources base for the previous calendar year.

(25) Case 57/69 ACNA v Commission [19721 ECR 933, paragraphs 29 and 31 to 32.

(26) Case C-30/89 Commission v France [1990] ECR I-691, paragraph 23 and the references contained therein.

(27) Case C-96/89, cited above at footnote 22, paragraph 37.

(28) At the oral procedure, the United Kingdom and Greece disputed that there had been any dialogue with the Commission.

(29) See point 98 for the calculations.