C-4/89 Comune di Carpaneto Piacentino and Others

Judgment of the Court (First Chamber) of 15 May 1990. - Comune di Carpaneto Piacentino and others v Ufficio provinciale imposta sul valore aggiunto di Piacenza. - Reference for a preliminary ruling: Commissione tributaria di primo grado di Piacenza - Italy. - Value added tax - Concept of taxable person - Public bodies. - Case C-4/89. European Court reports 1990 Page I-01869

Summary Parties Grounds Decision on costs Operative part

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Tax provisions - Harmonization of legislation - Turnover tax - Common system of value-added tax - Taxable persons - Bodies governed by public law - Exclusion of activities pursued as public authorities - Concept - Liability to tax where there are distortions of competition and economic activities which are important and not carried on on a negligible scale - Scope - Transposition of corresponding criteria into national law - Member States' obligations

( Council Directive 77/388, Art . 4(5 ) )

The first subparagraph of Article 4(5 ) of the Sixth Directive on the harmonization of the laws of the Member States relating to turnover taxes must be interpreted as meaning that activities pursued "as public authorities" within the meaning of that provision 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 . It is for the national court to classify the activities in question in the light of that criterion .

The second subparagraph must be interpreted as meaning that the Member States are required to ensure that bodies subject to public law are treated as taxable persons in respect of activities in which they engage as public authorities where those activities may also be engaged in, in competition with them, by private individuals, in cases in which their treatment as non-taxable persons could lead to significant distortions of competition, but they are not obliged to transpose that criterion literally into their national law or to lay down precise quantitative limits for such treatment .

The third subparagraph must be interpreted as meaning that it does not require the Member States to transpose into their tax legislation the criterion of the non-negligible scale of activities as a condition for treating the activities listed in Annex D as taxable .

In Case C-4/89

REFERENCE to the Court under Article 177 of the EEC Treaty by the commissione tributaria di primo grado di Piacenza, for a preliminary ruling in the proceedings pending before that court between

Comune di Carpaneto Piacentino and Others

and

Ufficio provinciale imposta sul valore aggiunto di Piacenza,

on the interpretation of Article 4(5 ) of Council Directive 77/388/EEC of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes - Common system of value-added tax : uniform basis of assessment ( Official Journal 1977, L 145, p . 1 ),

THE COURT ( First Chamber )

composed of : Sir Gordon Slynn, President of Chamber, R . Joliet and G . C . Rodríguez Iglesias,Judges,

Advocate General : J . Mischo

Registrar : D . Louterman, Principal Administrator

after considering the observations submitted on behalf of

the Comune of Carpaneto Piacentino and Others, by Francesco Tesauro and Michele Avantaggiati, lawyers,

the Government of the Italian Republic, by Professor Luigi Ferrari Bravo, Head of the Department for Contentious Diplomatic Affairs of the Ministry of Foreign Affairs, assisted by Franco Favara, avvocato dello Stato, acting as Agents,

the Commission of the European Communities, by Enrico Traversa, a member of its Legal Department, acting as Agent,

having regard to the Report for the Hearing and further to the hearing on 6 March 1990,

after hearing the Opinion of the Advocate General delivered at the sitting on 28 March 1990,

gives the following

Judgment

Grounds

1By order of 22 December 1988, which was received at the Court on 5 January 1989, the commissione tributaria di primo grado di Piacenza ( First Instance Tax Board, Piacenza ) referred to the Court for a preliminary ruling under Article 177 of the EEC Treaty several questions on the interpretation of Article 4(5 ) of Council Directive 77/388/EEC of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes - Common system of value-added tax : uniform basis of assessment ( hereinafter referred to as "the Sixth Directive"; Official Journal 1977, L 145, p . 1 ).

2Those questions arose in proceedings between the local authority of Carpaneto Piacentino and 11 other local authorities which intervened in support of it and the Ufficio provinciale imposta sul valore aggiunto di Piacenza ( Provincial Value-Added Tax Office, Piacenza ) concerning the classification for the purposes of liability to value-added tax ( hereinafter referred to as "VAT ") of the following transactions engaged in by the local authorities : concessions in respect of graves and cemetery vaults, sale of various fittings for vaults, sale of building land for subsidized housing and grants of building rights over land in connection with subsidized housing, contribution towards the payment of expenses incurred in installing water pipes, fees received for the concession to operate a public weighbridge, sales of salvaged plumbing material, sale of surplus road-making materials, sale of wood obtained from the lopping of trees lining the streets .

3In order to resolve that dispute, the commissione tributaria di primo grado di Piacenza stayed the proceedings and referred the following questions to the Court of Justice for a preliminary ruling :

"In order to bring the Italian system of value-added tax into line with the Community provisions was the Italian legislature under an obligation by virtue of Article 1 of the Sixth Directive :

( a ) to lay down the general principle set out in the first subparagraph of Article 4(5 ) of the Sixth Directive by stipulating specific criteria for defining the activities engaged in by local authorities in their capacity 'as public authorities' by reference to the concept of 'administrative functions' , as defined with regard to the various branches of municipal activities by Presidential Decree No 616 of 24 July 1977 adopted pursuant to Delegating Law No 382/1985, implementing Article 118 of the Constitution;

( b ) to exclude, therefore, from the range of commercial activities any activities which are deemed by law to involve the exercise of administrative functions pursuant to Presidential Decree No 616 of 24 July 1977 and the other legislative provisions referred to therein;

( c ) not to subject to value-added tax, in compliance with the second subparagraph of Article 4(5 ), activities engaged in optionally by local authorities ( management of certain public services ) where they do not lead to significant distortions of competition, in so far as the same services are also provided by private individuals, as is the case, for instance, with regard to the management of pharmacies in most local authority areas and, consequently, to specify the necessary quantitative limits;

( d ) to fix, pursuant to the third subparagraph of Article 4(5 ) of the Sixth Directive, a threshold below which there is no liability to tax in respect of the public activities listed in Annex D to the Sixth Directive ( excluding the management of water supply which, being compulsory, involves the exercise of an administrative function )?"

4All the questions referred to the Court are concerned with the interpretation of Article 4(5 ) of the Sixth Directive, which reads as follows :

"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 ."

5Reference is made to the Report for the Hearing for a fuller account of the facts and legal framework of the main proceedings, the course of the procedure and the written observations submitted to the Court, which are mentioned or discussed hereinafter only in so far as is necessary for the reasoning of the Court .

6By way of preliminary, it should be pointed out that the questions referred to the Court in this case are substantially similar to those which were the subject of the Court' s judgment of 17 October 1989 in Joined Cases 231/87 and 129/88 Ufficio distrettuale delle imposte dirette di Fiorenzuola d' Arda and Others v Comune di Carpaneto Piacentino and Another (( 1989 )) ECR 3233 .

First and second questions

7The first and second questions concern the first subparagraph of Article 4(5 ) of the Sixth Directive .

8It should be pointed out that, in the abovementioned judgment, the Court held that the first subparagraph of Article 4(5 ) of the Sixth Directive must be interpreted as meaning that activities pursued "as public authorities" within the meaning of that provision 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 . It is for each Member State to choose the appropriate legislative technique for transposing into national law the rule of treatment as a non-taxable person laid down in that provision .

9The only new issue raised in this case is the question whether the "administrative functions" exercised by Italian local authorities under Presidential Decree No 616 of 24 July 1977 are to be regarded as activities engaged in by the local authorities "as public authorities" and therefore as not subject to VAT .

10According to the judgment of 17 October 1989 in Joined Cases 231/87 and 129/88, cited above, paragraph 15, it is the manner in which the activities are carried out that determines the scope of the treatment of public bodies as non-taxable persons . In so far as that provision makes such treatment of bodies governed by public law conditional upon their acting "as public authorities", it excludes therefrom activities engaged in by them as bodies governed not by public law but by private law . Consequently, the only criterion making it possible to distinguish with certainty between those two categories of activity is the legal regime applicable under national law .

11The classification by the national legislature of certain activities exercised by local authorities as "administrative functions" may constitute an indication that those activities are subject to public law . However, as can be seen from the judgment of 17 October 1989, cited above, it is for the national court to make the appropriate classification of the activities concerned in the light of the criteria laid down by the Court .

12The answer to the first and second questions should therefore be that the first subparagraph of Article 4(5 ) of the Sixth Directive must be interpreted as meaning that activities pursued "as public authorities" within the meaning of that provision 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 . It is for the national court to classify the activities in question in the light of that criterion .

Third question

13In order to answer this question, it is sufficient to point out that in the judgment of 17 October 1989, cited above, the Court held that the second subparagraph of Article 4(5 ) of the Sixth Directive must be interpreted as meaning that the Member States are required to ensure that bodies subject to public law are treated as taxable persons in respect of activities in which they engage as public authorities where those activities may also be engaged in, in competition with them, by private individuals, in cases in which their treatment as non-taxable persons could lead to significant distortions of competition, but they are not obliged to transpose that criterion literally into their national law or to lay down precise quantitative limits for such treatment .

Fourth question

14In order to answer this question, it is sufficient to point out that in the judgment of 17 October 1989, cited above, the Court held that the third subparagraph of Article 4(5 ) of the Sixth Directive must be interpreted as meaning that it does not require the Member States to transpose into their tax legislation the criterion of the non-negligible scale of activities as a condition for treating the activities listed in Annex D as taxable .

Costs

Costs

15The costs incurred by Italian Republic and by the Commission of the European Communities, which have submitted observations to the Court, are not recoverable . Since these proceedings are, in so far as the parties to the main proceedings are concerned, in the nature of a step in the action pending before the national court, the decision on costs is a matter for that court .

Operative part

On those grounds,

THE COURT ( First Chamber ),

in answer to the questions submitted to it by the commissione tributaria di primo grado di Piacenza, by order of 22 December 1988, hereby rules :

Signatures

¹ The first subparagraph of Article 4(5 ) of the Sixth Directive must be interpreted as meaning that activities pursued "as public authorities" within the meaning of that provision 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 . It is for the national court to classify the activities in question in the light of that criterion .

² The second subparagraph of Article 4(5 ) of the Sixth Directive must be interpreted as meaning that the Member States are required to ensure that bodies subject to public law are treated as taxable persons in respect of activities in which they engage as public authorities where those activities may also be engaged in, in competition with them, by private individuals, in cases in which their treatment as non-taxable persons could lead to significant distortions of competition, but they are not obliged to transpose that criterion literally into their national law or to lay down precise quantitative limits for such treatment .

³ The third subparagraph of Article 4(5 ) of the Sixth Directive must be interpreted as meaning that it does not require the Member States to transpose into their tax legislation the criterion of the non-negligible scale of activities as a condition for treating the activities listed in Annex D as taxable .

O P I N I ON OF MR ADVOCATE GENERAL M I S C HO delivered on 28 March 1990 * Mr President, Members of the Court,

1None of the parties who submitted written observations in this case failed to point out the similarity of the questions referred to the court to those in Joined Cases 231/87 and 129/88 ([1989] ECR 3233). The answers to be given to them are largely if not entirely conditioned by those which the Court gave in its judgment of 17 October 1989 in those cases.

2On closer examination, it would even appear that the questions in this case and the grounds for referring them to the Court are in part identical to question 2(a) to (d) in Case 129/88. In fact they have been submitted by the same court. The principal, if not the only, difference is the reference to the concept of 'administrative functions' as defined in regard to the various branches of local authority activity by Presidential Decree No 616 of 24 July 1977, adopted for the purpose of implementing Article 118 of the Italian Constitution.

3In its first two questions, the commissione tributaria di primo grado di Piacenza wishes essentially to know whether the Italian legislature was required to lay down rules governing the exclusion of local authorities from the status of taxable person in respect of activities engaged in 'as public

* Original language: French.

authorities', within the meaning of the first subparagraph of Article 4(5) of the Sixth VAT Directive 1 by defining them in relation to the said concept of 'administrative functions' (question (a)) and, consequently, not to regard local authorities as taxable persons in respect of activities in which they engage in the context of their 'administrative functions' as defined in national law (question (b)).

4In short, compared to the earlier cases, the question is whether the concept of 'administrative functions' as defined in the Italian legislation can constitute a valid criterion for determining which activities are engaged in by local authorities 'as public authorities'.

5In the abovementioned judgment of 17 October 1989, the Court held, in answer to the first question, that:

'It is for each Member State to choose the appropriate legislative technique for transposing into national law the rule of treatment as a non-taxable person laid down in that provision' (first subparagraph of Article 4(5) of the Sixth Directive).

In paragraph 18 of the judgment, the Court had already decided that the Member States 'may, for example, merely incorporate into national law the form of words used in the Sixth Directive or an equivalent expression or they may draw up a list of activities in respect of which bodies governed by public law are not to be regarded as taxable persons'.

6The legislature may certainly define those activities by means of a concept (or expression) borrowed from national law or by reference to an already existing list, such as the concept or list of local authorities' 'administrative functions', but it is not required to do so (question (a)). However, if it adopts such a method, it must take care not to include in the list of activities so defined, activities which do not come within the definition which the Court has laid down of activities engaged in 'as public authorities'.

7The concept of activities engaged in 'as public authorities' is a Community law concept and is, moreover, unique to the Sixth Directive. It is from an analysis of the first subparagraph of Article 4(5) in the light of the scheme of the directive that the Court concluded that it is the manner in which the activities are carried out that determines the scope of the treatment of public bodies as non-taxable persons (paragraph 15). It follows that its scope does not depend only on classifications or concepts of national law, in particular, as is the case here, when they are borrowed from branches of law other than that at issue.

8It is thus not merely because a local authority activity is regarded as an 'administrative function' as defined by Presidential Decree No 616 that the authority may automatically be regarded as not being a taxable person in respect of it (question (b)).

9The Court has certainly decided that the only criterion making it possible to distinguish with certainty activities engaged in by bodies subject to public law 'as public authorities' from those governed by private law is the legal regime applicable under national law. However, even though the scope of the tax exemption thus depends on national law, it is not by virtue of the classification of certain activities by that law but solely in so far as national law requires bodies subject to public law to engage in a given activity under particular legal conditions of public law different from those applicable to private traders.

10At the hearing, brief reference was made to the problem of mixed regimes, that is to say, situations governed in part by public law (for example, a deed of concession) and in part by private law (for example, the contract governing the concession). The local authority of Carpaneto considers that the public law regime must take precedence 'if it is pre-eminent'. The Commission considers that the public law aspect of the activity must take precedence in all cases, in accordance with the principle accessorium sequitur principale and that, consequently, the activity in question must be excluded from the scope of VAT.

11However, having regard to the complexity of that problem, I do not think it is possible to take a position on it in these proceedings. That may be seen in particular from the fact that it has been resolved in different ways by different Member States. To remain with the example of concessions, referred to by the Commission, it would appear that the legislation which deals in the most detailed way is that of the Grand Duchy of Luxembourg. It provides that the hire and concession of the right to occupy or park on the public highway, concessions of landing and parking rights at airports, concessions of the right to operate a communal aerial and concessions of graves or crypts in cemeteries are not subject to VAT. 2

12On the other hand, the French legislation mentions none of those cases, but it provides that advertising billboard concessions are subject to VAT (Lamy fiscal, 1988, Vol. 2, No 5019). In French law, there is also an interesting example of a case in which the incidental does not follow the principal:

'Charges giving access to cross-country ski trails and public facilities which may be levied by local authorities in mountain areas are free of VAT. However, if such charges are collected by a departmental, interdepart mental or regional association, the amounts paid to that association in return for collecting the charge are subject to VAT. That is so even if the payment takes the form of a municipal subsidy or is deducted by the association from the amount collected (inst. 10 September 1985, BO 31-17-83)' (Lamy fiscal, Vol. 2, No 5018).

13It thus appears that the question of mixed regimes deserves a more detailed discussion. Moreover, since it was not raised in the questions referred to the Court, I do not think that the Court should give an answer on that subject.

I - 1 8 78

14The autonomy of the Italian regions was also raised at the hearing and reference was made to the possibility that one of them might reserve the exercise of certain activities solely to municipal authorities under a public law regime, whereas another region might also permit private traders to exercise the same activity under private law contracts.

15Like the Commission, I think that in such a case, the national legislature is entitled, in applying the criterion of 'significant distortions of competition', to charge VAT on the activities in question even though they are engaged in in certain parts of the territory 'under the legal regime particular to public bodies' and without there being any distortions of competition at local level.

16However, what is a court before which such a case is brought to do in the meantime? Here again, I share the Commission's view that the court should regard the activity engaged in by the local authority as subject to VAT if it comes to the conclusion that exemption would lead to significant distortions of competition between traders established in the various regions of the same Member State.

17However, since that problem was also not raised in the questions referred to the Court, I do not think it is necessary for the Court to deal with it in its answers.

18Consequently, I propose that the Court should answer the first two questions by repeating the answer given to the first question in Joined Cases 231/87 and 129/88 and adding that 'the Member States are not required to exclude certain activities from the scope of VAT solely on the ground that they are classified in national law as "administrative functions" or something similar'.

19With regard to question (c), the Court could simply repeat the answer given at point 2 in the operative part of the judgment in Joined Cases 231/87 and 129/88, or modify it slightly to make it correspond more closely to the express scope of the question, which seeks to determine not so much the conditions under which the Member States are required, by way of derogation from the first subparagraph of Article 4(5), to charge tax to local authorities, but under what conditions the latter are entitled, notwithstanding the second subparagraph of that provision, to be treated as non-taxable persons in respect of activities in which they engage 'as public authorities'.

20It should be recalled that under the second subparagraph, as the Court interpreted it in the abovementioned judgment,

'the Member States are required to ensure that bodies governed by public law are treated as taxable persons in respect of activities in which they engage as public authorities where those activities may also be engaged in, in competition with them, by private individuals, in cases in which their treatment as non-taxable persons could lead to significant distortions of competition, but they are not obliged to transpose that criterion literally into their national law or to lay down precise quantitative limits for such treatment' (paragraph 24).

21Moreover, the Court stated further on, in paragraph 32 of the judgment of 17 October 1989, that the fact that the application of that limitation on the exemption involves an assessment of economic circumstances does not deprive Article 4(5) of direct effect, with the result that

'a body governed by public law may rely on [that provision] for the purpose of opposing the application of a national provision making it subject to VAT in respect of an activity in which it was engaged as a public authority, which is not listed in Annex D and whose treatment as non-taxable is not liable to give rise to significant distortions of competition' (paragraph 33).

22It follows from the foregoing that, under the second subparagraph of Article 4(5), the Member States are not merely required to tax bodies subject to public law if their treatment as a non-taxable person under the first subparagraph would lead to significant distortions of competition but must also exclude them from VAT if the distortions of competition to which their exclusion is likely to lead are not 'significant', that is to say, they must comply with the rule of non-taxation notwithstanding the fact that distortions of competition are possible if those distortions are not 'significant'.

23In order to avoid any misunderstanding which might arise from the fact that the question refers to activities engaged in Optionally' and from the answers proposed by the plaintiff in the main proceedings, which contrasts activities in which local authorities are required to engage with those in which they engage optionally, I

Conclusion

24With regard to question (d), I propose would point out — and the Court might that the Court repeat the answer given at also do so in the statement of the grounds paragraph 3 of the operative part of the for its judgment — that those are not judgment in Joined Cases 213/87 and criteria which determine whether or not the 129/88, adding perhaps, as the Court did in activities of local authorities are engaged in paragraph 27 of that judgment, that it 'as public authorities' or are liable to tax. In follows from the fact that under the third particular, it is not only the activities in subparagraph of Article 4(5) of the Sixth which local authorities engage Optionally'

Directive the Member States are free to which may be covered by the second exclude the activities listed in Annex D from subparagraph. On the contrary, it is clear taxation in so far as they are carried out on from the judgment of 17 October 1989 a negligible scale that (paragraph 21) that the activities referred to in the second subparagraph are exactly the same as those referred to in the first subparagraph: regardless of whether they are engaged in on an optional or compulsory basis, tax must be charged in respect of them if failure to do so would 'they are also not required to fix a ceiling result in significant distortions of compe for treatment as non-taxable persons in tition. respect of the activities at issue'.

25I would conclude therefore by proposing that the Court should give the following answers to the questions referred to it by the commissione tributaria di primo grado di Piacenza:

'(1) The first subparagraph of Artide 4(5) of the Sixth Directive must be interpreted as meaning that activities pursued "as public authorities" within the meaning of that provision 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. It is for each Member State to choose the appropriate legislative technique for transposing into national law the rule of treatment as a non-taxable person laid down in that provision. The Member States are not required to exclude certain activities from VAT solely on the ground that they are classified in national law as "administrative Junctions" or something similar.

(2) The second subparagraph of Article 4(5) of the Sixth Directive must be interpreted as meaning that the Member States are required to ensure that bodies subject to public law are not treated as taxable persons in respect of activities in which they engage as public authorities even where those activities may also be engaged in, in competition with them, by private individuals, in cases in which their treatment as non-taxable persons is not capable of leading to significant distortions of competition, but they are not obliged to transpose that criterion literally into their national law or to lay down precise quantitative limits for such treatment.

(3) The third subparagraph of Article 4(5) of the Sixth Directive must be interpreted as meaning that it does not require the Member States to transpose into their tax legislation the criterion of the non-negligible scale of activities as a condition for treating the activities listed in Annex D as taxable. Nor are they required to fix a ceiling for treatment as non-taxable persons in respect of the activities at issue. '

Notes

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

(13) .6.1977, p. 1).

(2) Règlement grand-ducal of 22 October 1979 on the liability of bodies subject to public law to value-added tax, Mémorial A, p. 15542.

(3) The italicized passages are the modifications and additions made to the answers given in Joined Cases 231/87 and 129/88