C-427/98 Commission v Germany

JUDGMENT OF THE COURT 15 October 2002 *

In Case C-427/98, Commission of the European Communities,, represented initially by E. Traversa and A. Buschmann, then by E. Traversa and K. Gross, acting as Agents, with an address for service in Luxembourg,

v applicant, Federal Republic of Germany, represented by W.-D. Plessing and C.-D. Quassowski, acting as Agents,

* Language of the case: German.

defendant, supported by

United Kingdom of Great Britain and Northern Ireland, represented initially by J.E. Collins, acting as Agent, and subsequently by R. Magrill, acting as Agent, and R. Anderson, Barrister, with an address for service in Luxembourg,

intervener,

APPLICATION for a declaration that, by not adopting provisions allowing adjustment of the taxable amount where money-off coupons are reimbursed, the Federal Republic of Germany has failed to fulfil its obligations under Article 11 of 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), in the version contained in Council Directive 95/7/EC of 10 April 1995 amending Directive 77/388/EEC and introducing new simplification measures with regard to value added tax — scope of certain exemptions and practical arrangements for implementing them (OJ 1995 L 102, p. 18),

THE COURT,

composed of: G.C. Rodriguez Iglesias, President, J-P. Puissochet, R. Schintgen and C.W.A. Timmermans (Presidents of Chambers), C. Gulmann, D.A.O. Edward, V. Skouris (Rapporteur), F. Macken, N. Colneric, S. von Bahr and J.N. Cunha Rodrigues, Judges, Advocate General: F.G. Jacobs, Registrar: H.A. Rühi, Principal Administrator,

having regard to the Report for the Hearing,

after hearing oral argument from the parties at the hearing on 29 May 2001, at which the Commission was represented by E. Traversa and K. Gross, the Federal Republic of Germany by W.-D. Plessing and the United Kingdom by J.E. Collins and K. Parker QC,

after hearing the Opinion of the Advocate General at the sitting on 20 September 2001,

gives the following

Judgment

Legal context and the dispute

1By application lodged at the Court Registry on 26 November 1998 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 adopting provisions allowing adjustment of the taxable amount where money-off coupons are redeemed, the Federal Republic of Germany has failed to fulfil its obligations under Article 11 of 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), in the version contained in Council Directive 95/7/EC of 10 April 1995 amending Directive 77/388/EEC and introducing new simplification measures with regard to value added tax — scope of certain exemptions and practical arrangements for implementing them (OJ 1995 L 102, p. 18, hereinafter 'the Sixth Directive').

2By order of the President of the Court of 22 June 1999 the United Kingdom of Great Britain and Northern Ireland was given leave to intervene in support of the form of order sought by the Federal Republic of Germany.

Legislative framework

Community legislation

3 Article 11(A)(1)(a) and (3)(b) of the Sixth Directive provides:

'A. 'Within the territory of the country

1. The taxable amount shall be:

(a) in respect of supplies of goods and services other than those referred to in (b), (c) and (d) below, everything which constitutes the consideration which has been or is to be obtained by the supplier from the purchaser, the customer or a third party for such supplies including subsidies directly linked to the price of such supplies;

3The taxable amount shall not include:

(b) price discounts and rebates allowed to the customer and accounted for at the time of the supply.'

4Under the first subparagraph of Article 11(C)(1) of the Sixth Directive:

'In the case of cancellation, refusal or total or partial non-payment, or where the price is reduced after the supply takes place, the taxable amount shall be reduced accordingly under conditions which shall be determined by the Member States.' COMMISSION' v GERMANY

5Article 17(2)(a) of the Sixth Directive provides:

'In so far as the goods and services are used for the purposes of his taxable transactions, the taxable person shall be entitled to deduct from the tax which he is liable to pay:

(a) value added tax due or paid in respect of goods or services supplied or to be supplied to him by another taxable person.'

6Under Article 20(1 )(b) of the Sixth Directive:

'The initial deduction shall be adjusted according to the procedures laid down by the Member States, in particular:

(b) where after the return is made some change occurs in the factors used to determine the amount to be deducted, in particular where... price reductions are obtained;...'

7Under Article 21(1)(c) of the Sixth Directive:

'The following shall be liable to pay value added tax:

1. under the internal system:

(c) any person who mentions the value added tax on an invoice or other document serving as an invoice.'

National legislation

8Under the first three sentences of Paragraph 10(1) of the Umsatzsteuergesetz (German VAT law), in the version in force from 1 January 1993 (BGBl. 1993 I, p. 365), as rectified on 25 June 1993 (BGBl. 1993 I, p. 1160) ('the UStG'), the basis of assessment for VAT purposes is calculated as follows:

'Turnover shall be calculated in accordance with the remuneration received for supplies, other services (first sentence of Paragraph 1(1)(1)) and intracommunity acquisitions (Paragraph 1(1)(5)). Remuneration shall comprise the recipient's total outlay (net of turnover tax) for the purpose of obtaining the supply. Remuneration shall also include items received in respect of the service by the supplier from a person other than the recipient of the service.'

9Paragraph 17(1) of the UStG provides:

'When the basis of assessment of a taxable transaction for the purposes of Paragraph 1(1)(1) to (3) has changed,

1. the trader who made the supply shall adjust correspondingly the amount of tax payable and

2. the trader who received the supply shall adjust correspondingly the amount of input tax deductible in that regard;

that shall apply by analogy in the case of Paragraph 1(1)(5). Adjustment of the deduction of input tax may be waived where a third-party trader pays to the tax authority the amount of the tax corresponding to the reduction in remuneration; in that case the third-party trader is liable to pay the tax. The adjustments referred to in the first sentence must be made in respect of the taxable period within which adjustment of the basis for calculating the tax took place.'

Pre-litigation procedure

10In a letter dated 31 July 1992 sent to each of the Member States the Commission asked whether, in the Member State concerned, a manufacturer issuing vouchers in connection with his products was entitled to reduce his taxable amount accordingly when reimbursing the amount stated on the voucher to the retailer for a price reduction granted to the final consumer in exchange for that voucher.

11In its reply of 10 November 1992 the German Government provided, inter alia, the following explanation:

'The condition governing adjustment of tax and of input tax, under Paragraph 17(1) of the UStG is... that there has been a change in the basis for calculating the supplier's turnover in relation to his immediate customer. Accordingly, it applies only to price rebates (reducing the remuneration) owing to the fact that the trader returns the remuneration to the person who paid it. Reimbursement by the manufacturer in favour not of the recipient of the supply but of another person in the distribution chain does not entail a reduction in remuneration for the manufacturer. If the manufacturer issues a voucher which the final consumer may redeem directly or through the intermediary of a trader, or if he reimburses to the final consumer an amount of money, there is no reduction in the basis of the calculation for the purposes of Paragraph 17(1) of the UStG.'

12In a letter of formal notice sent to the German Government on 18 January 1994 the Commission claimed that the German legislation was in breach of the principles of value added tax (hereinafter 'VAT'), in particular Article 11 of the Sixth Directive, inasmuch as it denies a wholesaler the right to a reduction of its basis of assessment and a corresponding adjustment of its turnover tax where, upon presentation of a voucher, it reimburses a part of the price to a retailer with which it is not directly connected in the distribution chain.

13By letter dated 11 April 1994 the German Government replied that the situations envisaged in the abovementioned letter differed from those mentioned by the Commission in its letter of 31 July 1992 in so far as in the former the Commission assumed that the manufacturer undertook to reimburse the amount of the voucher to the retailer and that that reimbursement occurred through the intermediary of the wholesaler.

14In a supplementary letter of formal notice of 14 June 1995 the Commission stated its view that no distinction ought to be drawn according to whether the taxable person reimbursing the voucher was or was not directly connected with the taxable person who accepted that voucher as a means of payment or according to whether the voucher was reimbursed to the final consumer directly by the taxable person who had undertaken to do so or through the intermediary of another taxable person.

15In its reply of 4 September 1995 the German Government maintained its view that the issuer of a voucher may reduce its taxable amount only when it is directly linked in the distribution chain to the person to whom it reimburses the value of the voucher. It proposed in any event that the proceedings be stayed pending a ruling by the Court on the questions referred to it in the cases in which it gave judgment on 24 October 1996 (Case C-317/94 Elida Gibbs [1996] ECR 1-5339 and Case C-288/94 Argos Distributors [1996] ECR 1-5311), which on the date of its letter were still pending before the Court. Thus, initially, the Commission did not pursue the procedure for failure to fulfil obligations.

16By a letter dated 5 March 1997 the Commission drew the attention of the German Government to the fact that in the Elida Gibbs judgment the Court had fully endorsed its view of the matter. It therefore requested the German Government to inform it of the legal provisions which it had adopted in order to comply with that judgment.

17In its reply of 26 May 1997 the German Government requested the Commission to extend the stay of proceedings because it was still considering the Elida Gibbs judgment and the consequences for German law to be drawn therefrom.

18Since the Federal Republic of Germany had still not adopted any measures to bring its legislation into line with the judgment in Elida Gibbs, the Commission addressed a reasoned opinion to it on 23 March 1998.

19In a letter to the Commission of 26 August 1998 the German Government reaffirmed its view, though acknowledging that the substance of the Elida Gibbs judgment ran counter to its own interpretation. In particular it referred to an administrative circular from the Federal Ministry of Finance dated 15 April 1998 and entitled 'Assessment of the taxable amount in regard to turnover tax on the issue of vouchers offered with products' (Bundessteuerblatt 1998 I, p. 627).

20As is apparent from that circular, under German law, the manufacturer's taxable amount may be reduced by the amount indicated on a voucher only if the manufacturer reimburses that amount to a trader to whom he previously supplied the goods directly and on condition that the manufacturer establishes a corrected invoice resulting in a corresponding adjustment by the trader of the input tax deducted by him.

21Under those circumstances the Commission decided to bring these proceedings.

Grounds

Substance

22The issue of money-off coupons (vouchers) is a system used by manufacturers to promote sales of their products whereby retailers grant to final consumers a price reduction in exchange for vouchers issued by the manufacturer from whom they subsequently obtain reimbursement of their face value.

23It should also be stated that the Commission's application concerns the situation illustrated by the worked examples in paragraphs 29 to 39 of the Advocate General's Opinion in which one or more wholesalers intervene in the distribution chain between the manufacturer and the retailers and vouchers are reimbursed directly by the manufacturer to the retailers without any intervention by the wholesalers.

24It is common ground that in that situation the German legislation does not allow deduction from the manufacturer's taxable amount of the amount indicated on the vouchers. Under that legislation such a reduction is allowed only if the manufacturer delivered the product directly to the retailer who presents the voucher to him, for in that situation the reimbursement made by the manufacturer may be construed as the return of part of the sale price to his immediate customer.

25Furthermore, according to the German Government's analysis, the principle that the supplier's turnover tax must be concordant with the input tax paid by his customer requires the reduction in the manufacturer's taxable amount to be accompanied by a corresponding adjustment in the deduction of input tax by his immediate customer and the other intermediate links in the distribution chain, and by the retailer presenting the voucher to him.

26Conversely, the Commission contends that it is clear from the Sixth Directive, as interpreted by the Court in Elida Gibbs, that the taxable amount of a manufacturer who reimburses part of the price of one of his products must be reduced by the amount of that reimbursement after deduction of VAT without any distinction being made as to whether the person obtaining that reimbursement from the manufacturer is a taxable person or a final consumer or as to the number of persons comprising the distribution chain.

27Furthermore, the Commission infers from the principles underlying the Sixth Directive, as established by the Court in Elida Gibbs, that the manufacturer's taxable amount may be reduced without affecting the amount of input tax which the retailer is entitled to deduct and that it is therefore not necessary to correct the taxable amount in regard to the intermediate transactions.

28It should be borne in mind that Elida Gibbs concerned specifically the calculation of the taxable amount of a manufacturer who had issued money-off coupons giving rise, after purchase by the final consumer, to a reimbursement by that manufacturer to a retailer not directly connected to him in the distribution chain. The Court held that the manufacturer's taxable amount is equal to the selling price charged by the manufacturer, less the amount indicated on the voucher and refunded (Elida Gibbs, paragraph 34).

29At paragraphs 19, 22 and 23 of Elida Gibbs, the Court recalled the principle underlying the VAT system, which is that it is intended to tax only the final consumer and is completely neutral as regards the taxable persons involved in the production and distribution process prior to the stage of final taxation, regardless of the number of transactions involved. The Court inferred, at paragraph 24 of the judgment, that the taxable amount serving as a basis for the VAT to be collected by the tax authorities cannot exceed the consideration actually paid by the final consumer.

30It went on to observe that, under the Court's settled case-law, the concept of consideration in Article 11(A)(1)(a) of the Sixth Directive had to be interpreted as the 'subjective' value, that is to say, the value actually received in each specific case, and not a value estimated according to objective criteria. The Court concluded that it would not be in conformity with that directive for the taxable amount used to calculate the VAT chargeable to the manufacturer, as a taxable person, to exceed the sum finally received by him. Were that the case, the principle of neutrality of VAT vis-à-vis taxable persons, of whom the manufacturer is one, would not be complied with (Elida Cibbs, paragraphs 26 to 28).

31Accordingly, the Court held that the taxable amount attributable to the manufacturer as a taxable person must be the amount corresponding to the price at which he sold the goods to the wholesalers or retailers, less the value of those coupons. That interpretation, it added, was borne out by Article 11(C)(1) of the Sixth Directive, which seeks to ensure the neutrality of the taxable person's position (Elida Gibbs, paragraphs 29 to 31).

32Moreover, at paragraph 32 of the judgment in Elida Gibbs the Court expressly rejected the arguments advanced in particular by the German and United Kingdom Governments to the effect that deduction from the taxable amount of reductions granted directly, or of refunds made directly, to the consumer by the initial supplier after delivery to a wholesaler or retailer would upset the functioning of the VAT machinery and render the system unworkable because it would require each wholesaler or retailer in the chain retroactively to adjust the price and, consequently, the amount of VAT they had paid to their own supplier and would require the latter to issue amended invoices.

33In particular, the Court held that the VAT system is not disturbed as a result of such deduction since there is no need to readjust the taxable amount for the intermediate transactions. It stated that, for those transactions, observance of the principle of neutrality of VAT is ensured by application of the conditions for deduction set out in Title XI of the Sixth Directive (Elida Gibbs, paragraph 33).

34None the less, the German Government maintains that the approach adopted by the Court in Elida Gibbs in regard to the fiscal treatment of money-off coupons is incompatible with the principles on which the VAT system is based. It goes on to explain that this is why it has not brought its applicable legislation into line with it.

35The United Kingdom Government states that it has brought its legislation into line with the Elida Gibbs judgment but that the interpretation adopted by the Court in that judgment must be reviewed because it is irreconcilable with the very nature of the VAT system.

36In fact those two governments consider that, where the manufacturer and the ultimate beneficiary of the reimbursement of the voucher are not in a direct contractual relationship, any reduction in the manufacturer's taxable amount runs counter to the principle of VAT neutrality. They argue that that principle is also infringed if no formal adjustment of the manufacturer's taxable amount also affecting deductions by the retailer is required because only a system under which the supplier's liability to tax corresponds to the amount of the deductions by the customer enables taxable persons not to bear the burden of the VAT.

37In support of their view, the German and United Kingdom Governments rely on arguments seeking to point up the ways in which the VAT system is likely to be undermined by the Court's approach in Elida Gibbs. According to those governments, the principal problems occasioned by that approach are threefold: first, practical difficulties in the administration of the VAT system, secondly, the loss of tax revenue and, thirdly, breach of the requirement that VAT be neutral as regards competition.

Practical difficulties in the administration of the VAT system

38The German Government argues, first, that if under the approach advocated by the Commission formal adjustment of the manufacturer's taxable amount also affecting the deductions by the retailer were not required, the manufacturer would remain liable for the full amount of the tax stated on the invoice, under Article 21(1)(c) of the Sixth Directive.

39Moreover, Article 11(C)(1) of the Sixth Directive, which concerns cases in which the price is reduced after the supply takes place, makes reduction in the taxable amount subject to 'conditions which shall be determined by the Member States'. It infers therefrom that, when the manufacturer reimburses the amount stated on the voucher after the goods have gone through the distribution chain, that provision allows the Member States to require, as a condition for reducing the manufacturer's taxable amount, a corresponding adjustment of input tax and output tax in regard to the intermediate links in that distribution chain.

40Those arguments cannot be upheld.

41As regards, first, Article 21(1)(c) of the Sixth Directive, it should be recalled that that provision seeks to prevent the risk of losses of tax revenue as a result of incorrect or fictitious invoices. However, since reimbursement by the manufacturer to the retailer of the value of money-off coupons does not affect the other transactions in the distribution chain, the invoice issued by the manufacturer to his immediate customer cannot be regarded as either incorrect or fictitious. Under those circumstances, the provision does not preclude the approach adopted by the Court in Elida Gibbs.

42Next, it should be emphasised that observance of the principle of neutrality is ensured since the conditions for deduction set out in Title XI of the Sixth Directive allow the intermediate links in the distribution chain to deduct from their own taxable amount the sums paid by each to his own supplier in respect of VAT on the corresponding transaction and thus to pass on to the tax authorities the part of the VAT representing the difference between the price paid by each to his supplier and the price at which he supplied the goods to his purchaser (Elida Gibbs, paragraph 33).

43In those circumstances, reduction of the manufacturer's taxable amount cannot be made to depend on the subsequent alteration of the transactions effected by the intermediate links in the distribution chain which are in no way concerned by the price reduction or the reimbursement of the value of the voucher or the invoices relating thereto. Accordingly, Article 11(C)(1) of the Sixth Directive cannot be interpreted as precluding the approach adopted by the Court in Elida Gibbs.

44Secondly, the German and United Kingdom Governments maintain that the reimbursement of the voucher by the manufacturer to a retailer to whom he did not directly supply the goods constitutes consideration paid by a third party in the context of a transaction between the retailer and the final consumer. Accordingly, there is no reason to consider that the consideration received at the time of the initial supply by the manufacturer should be modified following such reimbursement.

45In that regard it is sufficient to state, first, that although the manufacturer may in fact be regarded as a third party as regards the transaction between the retailer who receives reimbursement of the value of the voucher and the final consumer, that reimbursement entails a corresponding reduction in the amount finally received as consideration for the supply by him and that consideration constitutes, pursuant to the principle of VAT neutrality, the basis for calculating the tax for which he is liable (see, in that connection, Elida Gibbs, paragraph 28).

46As regards, secondly, the supply by the retailer who receives the reimbursement, it is important to note that the fact that a portion of the consideration received for that supply was not actually paid by the final consumer himself but was made available on behalf of the final consumer by a third party not connected with that transaction is immaterial for the purposes of determining that retailer's taxable amount (see, in that connection, Case C-18/92 Bally [1993] ECR I-2871, paragraph 17).

47Accordingly, that argument must also be rejected.

The loss of tax revenue

48The German Government maintains that the approach advocated by the Commission concerning the reduction of the manufacturer's taxable amount entails a loss of revenue for the tax authorities inasmuch as it involves a twofold reduction in the taxable amount corresponding to the net value of the voucher. The argument is based on the premiss that the net value of the voucher must be subtracted from the retailer's taxable amount on the ground that it is not consideration moving from the final consumer within the meaning of Article 11(A)(1)(a) of the Sixth Directive.

49In particular, the German Government submits that the argument that the retailer's taxable amount for the sale to the final consumer should include the face value of the money-off coupon runs counter to the judgment in Case C-126/88 Boots Company [1990] ECR I-1235 and to the judgment in Argos Distributors, cited above. In the Boots Company judgment the Court held that the retailer's taxable amount is made up of the price of the goods less the face value of the coupon. In Argos Distributors the Court similarly held that the retailer's taxable amount comprises solely the actual cash amount received by the retailer. It follows that the vouchers presented at the time of purchase of a product may not be regarded as cash or as an expense on the part of the purchaser, so that they cannot constitute a portion of the consideration obtained by the retailer. so The German Government submits that if on the other hand the value of the vouchers were incorporated into the retailer's taxable amount, that could only constitute consideration from a third party, namely the manufacturer. In that case the payment by the manufacturer cannot be regarded as a reimbursement in favour of the retailer in the context of a rebate. That payment cannot therefore give rise to a reduction in the manufacturer's taxable amount.

51The United Kingdom Government supports the German Government's analysis. It adds that, under Article 17 of the Sixth Directive, the taxable person is entitled to deduct from the VAT which he is required to pay on the supply by him the VAT on the goods supplied to him and that, consequently, the tax which he may deduct must correspond to that for which his supplier is liable. Yet the Commission's view of the matter would necessarily upset the balance between input tax and output tax, since it would mean that the manufacturer is entitled to reduce his taxable amount when he reimburses the value of the voucher to a retailer who is not his immediate customer even if the amount paid by the manufacturer's immediate customer is in no way affected by that reimbursement.

52In that regard it should be noted that, as the Commission has rightly stressed, there is no contradiction between, on the one hand, inclusion of the value of the money-off coupon in the consideration paid by the final consumer to the retailer and, on the other, the reduction in the manufacturer's taxable amount. On the contrary, inclusion of the amount stated on the voucher in the retailer's taxable amount entails a corresponding reduction of the manufacturer's taxable amount in order to ensure that the amount represented by the voucher is subject to VAT only once, namely at the stage of the supply made by the retailer.

53Moreover, the rule that the tax paid by the final consumer should accord with that imposed on the transactions at each stage of the distribution chain requires each trader to be liable to the tax authorities for the tax relating to the value added by him. However, since the reduction in the manufacturer's taxable amount does not alter the value added by the retailer, it cannot affect the amount of VAT payable by the retailer. Conversely, if the reimbursement received from the manufacturer by the retailer were not included in the latter's taxable amount, the principle of VAT neutrality would be likely to be infringed.

54These findings are in no way invalidated by the judgments cited above in Boots Company and Argos Distributors, which, moreover, are not relevant to the present case since they concern transactions involving only retail selling companies and their immediate customers.

55More specifically, it should be recalled that the case which led to the judgment in Boots Company, cited above, concerned money-off coupons which were offered free of charge by a company to its customers when they purchased certain items and formed part of a promotion the costs of which were borne by the company. Consequently, the Court ruled that since such a price reduction formed part of the 'price discounts and rebates allowed to the customer' within the meaning of Article 11(A)(3)(b) of the Sixth Directive, the face value of the coupons was not to be included in that company's taxable amount (Boots Company, paragraphs 13, 21 and 22).

56In the case which led to the judgment in Argos Distributors, the vouchers were issued and sold by a company at their face value or with a rebate and were later used on the basis of their face value as means of payment in that company's stores by purchasers other than the acquirers of those vouchers. In that judgment the Court held that in order to calculate the VAT payable by Argos Distributors Ltd on the revenue from sales of goods paid for by those vouchers, the subjective consideration actually received by that company was constituted by the face value of the vouchers less any rebates actually granted (Argos Distributors, paragraphs 18 and 20).

57It is clear from the judgments in Boots Company and Argos Distributors, first, that assessment of the money-off coupons for the purpose of calculating VAT is determined by their legal and financial characteristics and, secondly, that the taxable amount of the trader who accepts them may not be less than the sum of money which he actually receives for the supply by him (see Boots Company, paragraphs 21 and 22, and Argos Distributors, paragraphs 19 to 23).

58It follows that, in situations such as that in the present case, the subjective consideration within the meaning of Article 11(A)(1)(a) of the Sixth Directive received by the retailer comprises the whole of the price of the goods, which is paid in part by the final consumer and in part by the manufacturer. In fact, the coupons substantiate the retailer's right to receive from the manufacturer a reimbursement in the amount of the reduction granted to the final consumer. It follows that the sum represented by the face value of those vouchers constitutes for the retailer an asset item realised on their reimbursement and that they must be treated, to the extent of that value, as a means of payment.

59Consequently, it must be accepted that the retailer's taxable amount for the sale to the final consumer is the full retail price, namely the price paid by the final consumer plus the amount reimbursed to the retailer by the manufacturer.

60Accordingly, the argument that the net value of the money-off coupon cannot be included in the retailer's taxable amount must be rejected.

61The German and United Kingdom Governments further maintain that the reduction in tax paid by the manufacturer without any corresponding adjustment in the deduction of input tax by its immediate customer and other intermediate transactions involves systematic loss of tax revenue on the crossborder use of money-off coupons and in the context of transactions in favour of taxable persons who are final consumers.

62In particular, those two governments mention the situation in which the supply by the retailer to the final consumer is an exempt export or a likewise exempt intracommunity supply, and the case where the final consumer buying the goods from the retailer is a trader using them for transactions subject to tax and having a right to deduct the tax charged by the retailer. According to those governments, inclusion of the money-off coupon in the retailer's taxable amount in those situations leads to over-deduction to the detriment of the tax authorities in the amount of the VAT element of the face value of the coupon.

63It should be noted that in the situations described in the preceding paragraph reduction of the manufacturer's taxable amount with no corresponding adjustment of the deductions of the traders in the distribution chain does not inevitably give rise to an imbalance between input tax and output tax, thereby undermining the VAT system. In fact, in all those situations concordance between input tax and output tax may be maintained by use of the measures provided for in the Sixth Directive.

64In particular, as regards normal intracommunity transactions the reason why the manufacturer using sales promotion schemes such as those at issue in the main proceedings is authorised subsequently to reduce his taxable amount is that the price paid by the final consumer includes VAT, and accordingly any reduction in that price likewise includes a VAT element. Conversely, where, owing to an exemption, the value stated on the money-off coupon is not chargeable to tax in the Member State from which the goods are despatched, no price invoiced at that stage of the distribution chain, or at a later stage, includes VAT, which means that a reduction or a partial reduction of that price cannot in turn include a VAT element capable of giving rise to a reduction of the tax paid by the manufacturer.

65Thus, as regards exempt supplies in export or intracommunity transactions, the tax authorities are able, by availing themselves of the possibilities afforded them under Article 11(C)(1) of the Sixth Directive, to prevent the manufacturer from deducting from his output tax what would be a fictitious amount of VAT. Over-deduction of VAT may be avoided by means of checks of the manufacturer's accounting records.

66Moreover, where the final consumer is a trader authorised to make deductions who uses the goods in his business, any over-deduction resulting from subsequent reimbursement of a voucher may be avoided by adjusting the deduction of input tax effected in respect of that final consumer in accordance with Article 20(1 )(b) of the Sixth Directive, which provides for the adjustment of deductions made initially in the case of a change in the matters taken into account in determining the amount of deductions occurring after the declaration has been made. Compliance with the duty to adjust deductions may be ensured in that case as well by accounting checks in respect of both the final consumer and the manufacturer.

67Accordingly, it must be concluded that, in situations which may give rise to over-deduction of input tax, such as those mentioned by the German and United Kingdom Governments, the Sixth Directive allows adequate measures to be taken to prevent any claim for deduction which is unjustified and thus any loss of tax revenue.

Infringement of the competitive neutrality of VAT

68The German Government further maintains that the approach adopted by the Commission under which the manufacturer is at all events entitled to reduce his taxable amount in the amount of the voucher reimbursed by him infringes the principle of VAT neutrality as regards competition. Such reduction leads to distortion of competition inasmuch as the tax treatment of the money-off scheme would then be more favourable than that of other promotional schemes.

69In that regard the German Government observes that a sales promotion scheme based on money-off coupons is decided upon by the manufacturer alone, who determines its scale and bears the attendant costs. However, the reduction in the financial burden on the manufacturer to the extent of the VAT included in the face value of the coupons in fact helps to finance sales promotion expenditure and is, therefore, likely to give rise to discrimination against other kinds of promotional schemes, such as advertising campaigns or free gift schemes.

70The German Government argues that a manufacturer wishing to promote the sale of his goods has an incentive to forgo the services of advertising agencies since his operating costs will be lower if he uses money-off coupons. As a result the reduction in the manufacturer's tax debt in the amount of the VAT included in the face value of the coupons deprives possible service providers of potential contracts.

71The German Government maintains that a reduction in the manufacturer's taxable amount corresponding to the net value of the coupons also gives rise to distortion of competition against promotional schemes taking the form of free gifts, such as that which formed the subject-matter of Case C-48/97 Kuwait Petroleum [1999] ECR I-2323. In that judgment the Court held that the offer of free gifts to the final consumer must be subject to turnover tax under Article 5(6) of the Sixth Directive since the gift does not constitute a rebate on the product promoted.

72Comparing the free-gift scheme with that of money-off coupons, the German Government claims that under the former the manufacturer must account for VAT on the free gift but is none the less entitled to deduct a corresponding amount in respect of the purchase of the gift. Conversely, if the manufacturer chose to replace that gift with a voucher having a face value corresponding to the net purchase price of the gift, he could reduce his operating costs in the amount of the VAT included in that face value. The result is that the tax treatment of free-gift schemes operated by the manufacturer is neutral whereas the issue of money-off coupons is more attractive from a VAT point of view.

73In that regard the Court would observe, first, that because VAT is neutral it does not, in principle, constitute a cost factor and cannot affect the choice of method adopted by manufacturers to promote sales of their products. In the present case the German Government has been unable to demonstrate the existence of tax treatment favouring the scheme of money-off coupons in relation to other methods of sales promotion and thus the existence of a distortion of competition.

74The German Government has not explained what the alleged distortion of competitive conditions to the detriment of advertising agencies consists of. There is no reason to suppose that if a manufacturer engaged an advertising agency to promote sales of his products he would necessarily be led to incur greater expenditure than that which he would incur by offering vouchers to final consumers, since the service by that agency would confer entitlement to deduction on the manufacturer and his tax burden would thus be reduced.

75Secondly, it should be recalled that the case which led to the judgment in Kuwait Petroleum, cited above, concerned vouchers offered by a petrol company to consumers with the purchase of a certain quantity of fuel which could be exchanged free of charge for gifts chosen from a special catalogue. The Court held that the offer of such gifts could not be regarded as constituting a rebate or discount under Article 11(A)(3)(b) of the Sixth Directive but was to be deemed to be a supply for valuable consideration and thus a taxable transaction under Article 5(6) of the Sixth Directive {Kuwait Petroleum, paragraphs 16,17 and 31). Under that provision, the application by a taxable person of goods forming part of his business assets for his private use or that of his staff, or the disposal thereof free of charge, where the value added tax on the goods in question was wholly or partly deductible, are to be treated as supplies made for consideration.

76However, the Court has also stated that a taxable person offering such gifts is authorised to deduct, in accordance with Article 17(2)(a) of the Sixth Directive, the amount of input VAT paid for the purchase of those goods (Kuwait Petroleum, paragraph 19).

77It therefore appears that, although the two types of promotional scheme, namely the issue of money-off coupons and the offer of advertising gifts, come under two distinct sets of rules, that difference in tax treatment is inherent in the structure of the Sixth Directive and cannot cause distortion of competition such as that alleged by the German Government.

78It follows that the argument of infringement of the competitive neutrality of VAT must likewise be rejected.

79In light of all the foregoing considerations it must be held that, by not adopting the measures necessary to allow adjustment of the taxable amount of the taxable person who has effected reimbursement where money-off coupons are reimbursed, the Federal Republic of Germany has failed to fulfil its obligations under Article 11 of the Sixth Directive.

Costs

Costs

80Under 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. Since the Commission sought an order for costs against the Federal Republic of Germany and the latter has been unsuccessful, it must be ordered to pay the costs.

81Under Article 69(4) of the Rules of Procedure, the United Kingdom is to bear its own costs.

Operative part

On those grounds,

THE COURT

hereby:

1. Declares that by not adopting the measures necessary to allow adjustment of the taxable amount of the taxable person who has effected reimbursement where money-off coupons are reimbursed, the Federal Republic of Germany has failed to fulfil its obligations under Article 11 of 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, in the version contained in Council Directive 95/7/EC of 10 April 1995 amending Directive 77/388/EEC and introducing new simplification measures with regard to value added tax — scope of certain exemptions and practical arrangements for implementing them;

2. Orders the Federal Republic of Germany to pay the costs;

3. Orders the United Kingdom of Great Britain and Northern Ireland to bear its own costs.

Rodriguez Iglesias Puissochet

Timmermans Gulmann

Skouris Macken Schintgen

Edward

Colneric von Bahr Cunha Rodrigues

Delivered in open court in Luxembourg on 15 October 2002.

R. Grass

Registrar G.C. Rodríguez Iglesias

President

OPINION OF ADVOCATE GENERAL JACOBS delivered on 20 September 2001 1

1This case concerns the way in which the basis of assessment for value added tax ('VAT') is to be determined where, as part of a promotional scheme, the original supplier of an item compensates a subsequent retailer for a price reduction granted by that retailer to his customer in exchange for a coupon or voucher issued by the original supplier, but where one or more other traders are present in the chain between supplier and retailer and where the prices paid by and to those other intervening traders are unaffected by the reimbursement.

2The Commission considers that, by failing to provide for the taxable amount to be adjusted in respect of the first supplier in those circumstances, the German authorities have not complied with their obligations under the Sixth VAT Directive, particularly in view of the Court's judgment in Elida Gibbs. 3 Legal background

The VAT system in general

3The principle on which VAT operates is set out as follows in Article 2 of the First VAT Directive:

'The principle of the common system of value added tax involves the application to goods and services of a general tax on consumption exactly proportional to the price of the goods and services, whatever the number of transactions which take place in the production and distribution process before the stage at which tax is charged.

On each transaction, value added tax, calculated on the price of the goods or services at the rate applicable to such goods and services, shall be chargeable after deduction of the amount of value added tax borne directly by the various cost components.' 5

4The deduction system is designed to avoid a cumulative effect where VAT has also been levied on goods and/or services used in order to produce those supplied — that is to say, to avoid VAT being levied anew on VAT already charged. By its operation, a chain of transactions builds up, in which the net amount payable in respect of each link is a specified proportion of the value added at that stage. When the chain comes to an end, the total amount levied will have been the relevant proportion of the final price.

5That approach also ensures the 'neutrality' of VAT as regards taxable persons — suppliers in the chain of transactions. They must account for tax in that they must charge VAT to the recipients of their supplies but by the operation of the system of deductions they do not in principle bear the burden of any tax themselves; only the final consumer at the end of the chain of supply in fact bears that burden.

The relevant provisions of the Sixth Directive

6Under Article 11(A)(1)(a) of the Sixth Directive, subject to certain detailed exceptions which do not affect the issue in the present case, the taxable amount for transactions within the territory of a country is to be

'everything which constitutes the consideration which has been or is to be obtained by the supplier from the purchaser, the customer or a third party for such supplies including subsidies directly linked to the price of such supplies'.

7Article 11(A)(3)(b) specifies that the taxable amount is not to include 'price discounts and rebates allowed to the customer and accounted for at the time of the supply'.

8Under the first subparagraph of Article 11(C)(1):

'... where the price is reduced after the supply takes place, the taxable amount shall be reduced accordingly under conditions which shall be determined by the Member States'.

9Article 17(2) provides:

'In so far as the goods and services are used for the purposes of his taxable transactions, the taxable person shall be entitled to deduct from the tax which he is liable to pay:

(a) value added tax due or paid in respect of goods or services supplied or to be supplied to him by another taxable person;

...'

10In accordance with Article 20(1):

'The initial deduction shall be adjusted according to the procedures laid down by the Member States, in particular:

(b) where after the return is made some change occurs in the factors used to determine the amount to be deducted, in particular where... price reductions are obtained;...'

11Finally, under Article 21:

'The following shall be liable to pay value added tax:

1. under the internal system:

(c) any person who mentions the value added tax on an invoice or other document serving as an invoice;

..."

The German legislation in issue

12Paragraph 17(1) of the Umsatzsteuergesetz (German VAT Law, 'the UStG') provides:

'Where the basis of assessment of a taxable transaction... has changed,

(1) the trader who made the supply shall adjust the amount of tax payable and

(2) the trader who received the supply shall adjust the amount of input tax deductible in that regard;

..." The Court's judgment in Elida Gibbs

13In this case a manufacturer operated promotional schemes of two basic kinds. Under the 'money-off' schemes, a retailer would accept price reduction vouchers from customers in part-payment for an item and would be reimbursed the amount of the reduction by the manufacturer, regardless of whether he had bought the goods directly from the manufacturer or through a wholesaler. Under the 'cash-back' scheme, the manufacturer printed vouchers with a particular face value on the packaging of its products and would redeem those vouchers for cash directly to any end-purchaser who submitted them. The VAT and Duties Tribunal, London, asked the Court whether the manufacturer's taxable amount was the price at which it had originally supplied the goods or that price less the reimbursement.

14In answering that question, the Court stressed the basic principles of the VAT system, in particular its neutrality as regards taxable persons and the fact that the tax burden is borne by the final consumer, with the result that the taxable amount serving as a basis for the VAT to be collected cannot exceed the consideration actually paid by that consumer. 9

15Bearing those principles in mind, and interpreting the concept of 'consideration' in Article 11(A)(1)(a) of the Sixth Directive in accordance with its previous case-law to the effect that such consideration is the value actually received in each specific case, the Court held that, in the circumstances of either of the types of scheme in issue:

'It would not... be in conformity with the directive for the taxable amount used to calculate the VAT chargeable to the manufacturer, as a taxable person, to exceed the sum finally received by him. Were that the case, the principle of neutrality of VAT vis-à-vis taxable persons, of whom the manufacturer is one, would not be complied with.

Consequently, the taxable amount attributable to the manufacturer as a taxable person must be the amount corresponding to the price at which he sold the goods to the wholesalers or retailers, less the value of [the] coupons.

That interpretation is borne out by Article 11(C)(1) of the Sixth Directive which, in order to ensure the neutrality of the taxable person's position, provides that, in the case of cancellation, refusal or total or partial non-payment, or where the price is reduced after the supply takes place, the taxable amount is to be reduced accordingly under conditions to be determined by the Member States.'

16The Court considered that the absence of a direct contractual link between the manufacturer and the final consumer did not affect that finding, and rejected objections put forward by the United Kingdom, German and Greek Governments to the effect that the required adjustments to the taxable amounts of intermediate traders would render the system unworkable, pointing out that there was in fact no need for those amounts to be adjusted.

Procedure in the present case

17In 1992, the Commission asked all the Member States whether under their legislation a manufacturer who reimbursed a retailer for a reduction granted to a final consumer in exchange for a voucher was entitled to reduce his taxable amount accordingly. The German Government replied to the effect that under Paragraph 17(1) of the UStG such a reduction was possible only where the amount of the transaction between the manufacturer and his immediate customer was affected; where the reimbursement was made to another person further removed in the chain of supply the manufacturer's taxable amount could not be reduced.

18The Commission considered that situation to be incompatible with the Sixth Directive and set in motion the procedure provided for in Article 169 of the EC Treaty (now Article 226 EC) but, after an exchange of correspondence, agreed to suspend that procedure pending delivery of the judgment in Elida Gibbs. When, following that judgment, the German Government still did not amend its legislation H but maintained its previous position, the Commission issued a reasoned opinion on 23 March 1998 and brought the present action on 26 November 1998, seeking a declaration that, by failing to adopt provisions enabling the basis of assessment to be adjusted when 'money-off' vouchers are redeemed, the Federal Republic of Germany has failed to fulfil its obligations under Article 11 of the Sixth Directive.

19The French and United Kingdom Governments both announced their intention to intervene in support of Germany in this case, but the French Government subsequently withdrew. The United Kingdom has submitted observations in intervention. At the hearing, oral argument was presented by the German and United Kingdom Governments and by the Commission.

Analysis

The scope of the dispute

20First, it is common ground that the German provisions in issue do indeed have the effect which the Commission ascribes to them. The question to be decided is whether that effect is compatible with the Sixth Directive.

21Second, the Commission seeks a declaration only in respect of Germany's treatment of 'money-off' vouchers although, as the German Government has pointed out, it devotes an appreciable part of its submissions to the treatment of 'cash-back' vouchers.

22It is clear that the Court's ruling must be confined to the treatment of 'money-off' vouchers.

23However, the situation of which the Commission complains is Germany's failure to provide for adjustment of the original supplier's taxable amount when he redeems a voucher by making a cash payment to a retailer who accepted the voucher in part-payment of goods sold to a final consumer, when the original supplier did not supply those goods directly to the retailer. There is no material difference — as regards the adjustment of the original supplier's taxable amount — between that situation and one in which the cash payment is made directly to the consumer. What is at issue is the possibility of making an adjustment to a supplier's taxable amount as a result of a payment (a price reduction or rebate) which 'leapfrogs' one or more links in the normal VAT chain.

24At the hearing, the German Government argued that the 'money-off' and 'cash-back' situations were very different. However, that appeared to be on the basis of the examples set out in the table which it presented to the Court, in which the original supplier had sold directly to the retailer. In that situation, the German rules allow for an adjustment to be made to the amount of that original transaction where a 'money-off' voucher is used, but not where a 'cash-back' voucher leads to a payment direct from the first supplier to the final consumer. There is thus a difference there, but that difference disappears when another link — say a wholesaler — is added to the chain between the original supplier and the retailer. In that case, which is the situation of which the Commission complains, the German rules prevent adjustment of the supplier's taxable amount equally where 'money-off' and 'cash-back' vouchers are concerned.

25Thus, despite the circumscribed nature of the order formally sought, it is in my view acceptable, for the purposes of analysis, to consider the situation of 'cash-back' vouchers alongside that of 'money-off' vouchers.

26Third, the German and United Kingdom Governments invite the Court to reconsider its judgment in Elida Gibbs, either overturning it or in some way limiting its effects. The Commission points out that the arguments advanced by the German Government are essentially those which it put forward in that case, and which were explicitly rejected by the Court. Both Governments consider that judgment to be, at least in part, incompatible with the principles of the VAT system. The United Kingdom Government specifically points out that the judgment was given by a Chamber of five judges reduced to three and that it went against the views of the Advocate General.

27Indeed, unless Elida Gibbs is reversed, the case against Germany seems straightforward and difficult to defend. The terms of the judgment are clear and it is common ground that the German rules are not consistent with them.

28This case may be addressed, therefore, as a reopening, before a Full Court, of the issues in Elida Gibbs.

The basic chain

29It will be necessary to look at some detailed examples of how the system works. For that purpose, it may be helpful to set down at this point a simplified model of a standard VAT chain. It should be stressed that such a model, like the similar models used by the parties in their submissions, is of an abstract nature and does not reproduce all the complex realities of VAT in actual trade. Despite its level of abstraction, however, it does provide an accurate picture of the application of the tax.

30I shall base my simplified chain on that used by the German Government in its rejoinder, in which there are four parties (and three transactions). The four parties comprise three taxable persons (who might be a manufacturer, a wholesaler and a retailer) and a final consumer. I shall refer to them respectively as A, B, C and D.

31We may assume that the transactions in question are successive sales of the same item, with an increase in price at each stage, although the essentials would in principle remain the same for other types of chain. In fact, the nature of 'leapfrog ging' voucher schemes is such that they almost inevitably apply only to goods and only when the goods concerned are not noticeably transformed by the transactions in the chain — A's aim is to promote the sale of his own goods, not of goods incorporating his supplies.

32To make matters as simple as possible, I shall take a fictitious rate of VAT of 10% and I shall assume the increase in price at each stage to be 100 (the currency being immaterial), exclusive of tax.

33Thus, the basic chain is as follows: (i) A sells to B at a net price of 100, plus 10% VAT, making a total of 110, and accounts to the tax authorities for output tax of 10; (ii) B sells to C at a net price of 200, plus 10% VAT, making a total of 220; B must therefore account to the tax authorities for output tax of 20, from which he deducts his input tax of 10; (iii) C sells to D at a retail (VAT-inclusive) price of 330, made up of a net price of 300, plus 10% VAT; C must in turn pay 10 to the tax authorities, representing the VAT of 30 which now burdens the item, less the 20 which has already been accounted for at the earlier stages.

34In that chain the traders A, B and C have in fact not borne the burden of any VAT themselves, but have merely added tax in proportion to the amount by which they increased the net price and passed that on, together with the amount of VAT already burdening their inputs, to the next person in the chain. At each stage, the full amount of their output tax is collected from that next person and the difference between that and their input tax is paid to the tax authorities. D, however, at the end of the chain, not being a taxable person who is going to use the goods for his own taxable outputs, pays the total net price of 300, plus VAT at 10%, making a total of 330.

The basic variants

35Essentially, Elida Gibbs was concerned with two variants of that basic chain, and both have been discussed in the present case.

36The first is where A issues a 'money-off' voucher (it will be simplest to postulate the face value of the voucher as being 11) to D and at the same time promises that he will reimburse that face value of that voucher to C if C accepts it from D in part-payment of A's goods. In this variant, the net amounts paid and received by B are not affected.

37In the second, A issues a 'cash-back' voucher (which will generally be attached to the goods in such a way as to serve also as proof of purchase) to D and reimburses the face value of that voucher (which I shall again assume to be 11) directly to D. In this variant, the net amounts paid and received by B and C are not affected.

38In both cases, the amount (11) of the refund or reduction from which D benefits concerns the VAT-inclusive price. It may therefore be deemed to comprise a net element of 10 and a VAT element of 1.

39As I have pointed out above, there is no essential difference between those two variants for present purposes. The specific issue in this case concerns the transaction between A and B, and whether A's taxable amount (and consequently the amount of his output tax) may be reduced without affecting the amount of input tax which B may deduct.

The competing approaches

40The Commission essentially takes a global view of the situation when assessing the effect of Elida Gibbs.

41It argues that where the manufacturer has sold an item to an intermediary at a price of 110 including tax (100 net), and later makes a promotional reimbursement of 11 including tax (10 net), the taxable amount must be 100 - 10 = 90, and the tax 10 - 1 = 9. This applies regardless of whether the 11 was reimbursed or discounted to the same intermediary, to another intermediary further removed in the chain of supply or to the final purchaser. To make the manufacturer account able for a greater sum would not be compatible with the principle of neutrality.

42In addition, where the final consumer has obtained a reduction or partial reimbursement of the price paid, the total amount of VAT levied may not exceed the proportion of the price actually paid (that is to say, after deduction of the reduction or reimbursement) which represents VAT at the applicable rate. Thus, where a consumer buys an item at a tax-inclusive price of 330 (300 net) against which he receives a reduction or reimbursement of 11, making a definitive tax-inclusive total of 319 (290 net), the total amount of VAT levied must be 29 (10% of 290). It is thus contrary to the Sixth Directive to levy a total of 30 in those circumstances.

43In contrast to the Commission, the German and United Kingdom Governments take a step-by-step approach to each transaction in the chain of supply, arguing that neutrality, certainty and effective control are ensured only when each trader in the chain deducts from his output tax exactly the amount of VAT which was passed on to him in the form of input tax; any adjustment made must thus concern both sides of a transaction. Where a sum of money changes hands outside a transaction in the chain, it can have no effect on the amount of tax accounted for in respect of that transaction.

44The two governments put forward a number of specific objections to the approach taken by the Commission (and by the Court in Elida Gibbs), which I shall examine in turn below. They may be grouped in three categories — discrepancies in accounting, loss of tax revenue and distortion of competition — but are presented, like the Commission's arguments, in terms of the basic principles of the VAT system.

45However, the contrasting approaches suggest that, in the types of voucher scheme in issue, it may not be possible to reconcile all of those principles entirely. Whilst such reconciliation should clearly be achieved wherever possible, it is not easy, as Advocate General Fennelly noted in his Opinion in Kuwait Petroleum, to extract 'a completely coherent set of rules which it is possible to apply with total confidence to every promotion scheme devised by the ingenuity of commerce'.

The competing principles

46Both sides stress the neutrality of VAT as far as traders are concerned — the actual burden of the tax should be borne only at the final consumption stage and tax levied at earlier stages in the chain should be passed along to that final stage.

47However, they take different views of the essential requirements for that neutrality. On the one hand (the point of view favoured by the Commission), such a principle implies that a taxable person must not be accountable for tax on a sum greater than that which he has finally actually received in respect of the transaction, and that the total tax levied on the chain of supply as a whole must be the relevant proportion of the final net price. On the other (the point of view favoured by Germany and the United Kingdom), it implies that the amount deducted in respect of each transaction must correspond exactly to the amount charged on the previous transaction.

48In the normal course of events (the basic chain I have described above) those two implications both hold true and are totally compatible.

49In the variants in issue, however, the fact that a price reduction is made, after the supply takes place, in the form of a payment by A to either C or D cannot easily be taken into account without com promising one implication or the other.

50If A (who has paid the reduction) is allowed to reduce his taxable amount accordingly, his output tax will no longer correspond to B's input tax; B will be able, unless his own tax position is adjusted, to deduct from his output tax an amount greater than that which has been accounted for on his inputs. But if A is not allowed to do so, he will be accountable for tax on a sum greater than that which he effectively received and the total amount of VAT levied in respect of all the transactions in the chain will be greater than the appropriate rate for the price finally paid by D.

51This case concerns the taxable amount in respect of A's sale to B. That amount is, under Article 11(A)(1)(a) of the Sixth Directive, the consideration obtained by the supplier. As was stressed in Elida Gibbs, that consideration is the value actually received in each specific case. The Court was not innovating when it made that statement, but recalling consistent case-law going back to 1981, and the rule has again been reaffirmed since. In the present case, it is clear that, thus defined, the consideration obtained by A, once the promotional payment has been made, is less than the amount initially paid to him by B.

52In addition, the nature of VAT is that it represents a defined proportion of the value added at each stage in the chain and, at the final consumption stage, that same proportion of the overall value of the chain of supply. In the words of Article 2 of the First Directive, it is 'a general tax on consumption exactly proportional to the price of the goods and services, whatever the number of transactions which take place in the production and distribution process before the stage at which tax is charged'. In the present case, once the promotional payment has been made, the overall value of the chain of supply is less than the unreduced value of the supply by C to D.

53Bearing the above considerations in mind, I turn to the detailed objections put forward by the German and United Kingdom Governments.

Discrepancies in accounting and control

54It may be helpful to return at this point to the simplified model chains set out above, to examine exactly what happens if Germany's approach is followed and what happens if the Commission's approach is followed.

55In the 'money-off' variant, D pays C the sum of 319 in cash, together with a voucher for 11, and A pays C the sum of 11 in exchange for the voucher. In Germany's view, that has no effect on any of the VAT (10 + 10 + 10) levied at the three stages in the chain, since it is separate from any of those three transactions. In the Commission's view, the payment reduces A's taxable amount by 10 and thus the amount of his output VAT by 1, but has no effect on the taxable amount or amount of tax in the second and third transactions — or, indeed, on the amount of input tax deductible by B in respect of the first transaction; the total VAT levied is thus 9+10 + 10.

56In the 'cash-back' variant, A pays D the sum of 11 in respect of D's purchase from C at a tax-inclusive price of 330. Again, in Germany's view, that has no effect on any of the three transactions. In the Commission's view, the only effect is again to reduce A's taxable amount by 10 and his output tax by 1; there is no change to the amount of input tax deductible by either B or C.

57The reason the result is the same under each approach in both variants is that the 'leapfrogging' payment is simply moved one stage nearer to or further away from the first transaction, but there is always at least one trader in the chain who neither receives nor makes the payment. It seems to be common ground that without such 'leapfrogging' — if A sold directly to C who sold to D, and D paid in part with a voucher later redeemed by A to C; or if the voucher used by D was redeemed first by B to C and then by A to B; or if A sold directly to D and later refunded part of the purchase price — all the taxable amounts would fall to be adjusted.

58However, in the type of 'leapfrogging' case in issue, the approach taken by the Court in Elida Gibbs and defended by the Commission in the present case means that A's taxable amount corresponds to the value actually received by him and the amount of VAT received by the tax authorities is exactly proportional to the final value of the chain of supply, whereas the approach taken by Germany and the United Kingdom leads to neither of those results.

59On the other hand, the Elida Gibbs approach leads to a situation in which A, having originally charged VAT of 10 to B (which B has deducted, when accounting to the tax authorities, from the output tax he charged on his sale to C), is then allowed to reduce that amount to 9 retroactively without affecting B's entitlement to deduct 10. Germany and the United Kingdom consider that to be an unacceptable discrepancy, entailing a gap in the way in which the tax is accounted for and collected.

60I am not convinced that the discrepancy is unacceptable. Value added tax is what it says — a tax on the value added at each stage. At each stage, the amount payable to the tax authorities is based on the difference between inputs and outputs. The actual value of the transactions, although relevant to verifying whether the total amount of tax has been correctly levied, does not affect that difference. From that point of view, it seems to me immaterial whether, if A's output tax is retroactively adjusted, B's input tax is also adjusted or not, provided that the difference between B's input and output taxes amounts to tax at the correct rate on the value actually added by B. An artificial adjustment of the intermediate transactions, which might be possible under Article 20(1) of the Sixth Directive but which all parties agree would be a very cumbersome operation, is simply not necessary to achieve the correct result.

61Three detailed arguments, however, must be dealt with under this heading.

62First, the German Government argues that since, under Article 21(1)(c) of the Sixth Directive, any person who mentions VAT on an invoice is liable to pay that tax, no adjustment can be made to a supplier's taxable amount without rectifying the invoice.

63However, I do not consider that Article 21(l)(c) should be read as requiring such a result. That provision is concerned with ensuring that when tax is invoiced tax is accounted for, not with calculating the amount of that tax. The central aim is to ensure that amounts deducted as input tax on the basis of invoices balance back along the chain of supply with the amounts paid as output tax. That aim is not thwarted by an adjustment which, although not passed on to all the other transactions in the chain, has no effect on such overall balance.

64Article 21(l)(c) has been interpreted by the Court principally in two cases: Genius Holding and Schmeink Sc Cofreth. Neither of those cases concerned the point in issue in the present case, but it is clear from both judgments that the Court was concerned primarily with the possibility of fraud or, more generally, loss of tax revenue. In Schmeink in particular, it did not take a rigorous approach to the provision but considered that its purpose, even as regards fraud, was simply to ensure proper collection of tax due. The Court also expressly accepted (in Genius) that the amount of tax deductible by B need not be the same as that which A is liable to pay under Article 21(l)(c) and (in Schmeink) that the provision does not preclude subsequent rectification of the amount payable by A on the basis of the invoice, provided that there is no risk of any loss in tax revenue.

65I shall deal more fully with the issue of 26 loss of tax revenue below but I do not consider there is any risk of such loss in the hypotheses I have outlined above.

66Second, Germany and the United Kingdom argue that a refund paid by A to D (or to C) should be regarded as consideration obtained from a third party, and thus as part of the taxable amount under Article 11(A)(1)(a), rather than as a price reduction after the supply takes place, giving rise to a reduction in the taxable amount under Article 11(C)(1). Germany claims that, as regards the supply by C to D, A is no more a party to the transaction than D's dear old grandmother would be, if she advanced part of the price; the United Kingdom compares the situation to A standing outside C's shop, handing bank notes to those who have bought his goods.

67I consider that analysis to be correct, in so far as the transaction between C and D is concerned. Either (in the 'money-off' situation) D pays 319 to C together with a voucher for 11 which A then redeems to C, or else (in the 'cash-back' situation) he pays the full price of 330 and later receives 11 from A. In the first case, A is a third party to the transaction between C and D, paying part of the consideration, in the second he is entirely extraneous to the transaction. In both cases, the correct amount of VAT to be levied in respect of the retail sale is 30 (10% of the final net sales price received by C) minus C's input tax of 20.

68However, the application of Article 11(A)(1)(a) to that transaction does not preclude the application of Article 11(C)(1) to A's own taxable amount, which relates to a different transaction. It is the price of that first supply that has been reduced. Article 11(C)(1), moreover, refers only to reduction of the supplier's taxable amount, not of the recipient's input tax. Although it will normally be the case that a reduction affects both sides of a transaction, there is nothing to preclude its application to only one side when only one side is affected.

69Thus, I do not see any conflict between the two provisions in their application to the types of scheme envisaged here, or between their application and the approach advocated by the Commission.

70Third, the German Government points out that the reduction of taxable amount provided for in Article 11(C)(1) is subject to 'conditions which shall be determined by the Member States'. Does that entitle a Member State to impose the condition that there can be no adjustment unless A's invoice is rectified, and that in that case B's input tax must be reduced?

71In Molenheide, the Court held that

'whilst it is legitimate for the measures adopted by the Member States to seek to preserve the rights of the Treasury as effectively as possible, they must not go further than is necessary for that purpose. They may not therefore be used in such a way that they would have the effect of systematically undermining the right to deduct VAT, which is a fundamental principle of the common system of VAT established by the relevant Community legislation.

... the principle of proportionality is applicable to national measures... adopted by a Member State in the exercise of its powers relating to VAT, since, if those measures go further than necessary in order to attain their objective, they would undermine the principles of the common system of VAT and in particular the rules governing deductions which constitute an essential component of that system.'

72Those statements refer specifically to the right to deduct VAT, but I consider that the right to deduct is simply one aspect of the overarching right not to be required to pay more tax than should be levied having regard to the value of one's transactions. The right to have one's output tax established on the correct basis (following retroactive adjustment where the basis has changed) is another aspect, at least equally important, and the same principles must apply.

73In the light of my view on the correct approach to the chain of transactions in schemes of the kinds in issue, I consider that a requirement that the retroactive adjustment be passed along the whole chain in order to qualify for a reduction does go further than is necessary to attain the objective of protecting the rights of the tax authorities. It cannot therefore be justified on the basis of the Member States' powers under Article 11(C)(1) of the Sixth Directive.

74That is not to negate the effect of that provision by denying Member States any power to determine conditions for the adjustment to be made. I consider, however, that the type of condition envisaged relates rather to ensuring that no reduction is granted unless it is justified, and might include, for example, requirements relating to proper documentary evidence of payments made.

Loss of tax revenue

75Both Germany and the United Kingdom claim that the Commission's approach entails a loss of tax revenue.

76It must be borne in mind here that tax revenue is not lost merely because it is lacking. Tax revenue is lost only where it should have been collected but was not.

77In the simplified model I have used, the German Government's approach involves levying VAT of 10 on the supply by A to B and 30 on the whole chain of transactions in question. The approach followed by the Court in Elida Gibbs and defended by the Commission in the present case means that the amounts levied are only 9 and 29 respectively.

78In my view, analysis of the transactions shows that in the normal course of events 9 and 29 are the proper amounts of tax to be levied, having regard to the actual value received by A and the total economic value of the chain. The difference between those amounts and the 10 and 30 which the German tax authorities would like to levy is not a 'loss' of tax revenue.

79However, Germany has identified two situations in which that normal course of events does not run true. The Commission retorts that those situations are extremely rare in practice. Be that as it may, they cannot be dismissed out of hand. In relation to a third allegation, however, the German position is in my view quite mistaken.

— Exempt exports

80Under Article 15 of the Sixth Directive, a number of supplies made outside the Community are exempt from VAT. Under Article 17(3)(b), all input tax in respect of such supplies must be deducted or refunded. The German Government points out that, if C or D is outside the Community, B or C, as the case may be, will be entitled to a refund/deduction of the full input tax of 20 which has already been borne by the item supplied; however, if A subsequently makes a promotional payment of 11 reducing the cost to D and is allowed to reduce his output tax concomitantly by 1, a total of 21 will be repaid by the tax authorities where only 20 had been collected.

81That would indeed amount to a loss of tax revenue.

82The Commission objects that voucher scheme reimbursements involving exports are practically non-existent. However, the German Government referred at the hearing to promotional cash payments, of non-negligible sums, made by car manufacturers to final purchasers, including those outside the Community. Such situations should therefore be taken into consideration, although it seems to me that they can be dealt with adequately without upsetting the approach taken in Elida Gibbs.

83If, in the normal intra-Community situation, A may be allowed to adjust his output tax downwards on making a promotional payment to or on behalf of D, that is because the price paid by D is inclusive of VAT, so that any reduction in it may also be deemed to include a proportion of VAT. Where on the other hand an item is exported from the Community free of VAT in accordance with Articles 15 and 17(3)(b) of the Sixth Directive, no Community VAT is included in any price charged at that or any subsequent stage in the chain. Thus any payment made by A to a subsequent recipient outside the Community cannot be deemed to include any amount of VAT which could give rise to a reduction in A's output tax.

84It should not be prohibitively difficult to ensure that A cannot deduct what would be a fictitious amount of VAT from his output tax in such cases. In order to make such a deduction in the normal course of events, A must at the very least keep proper accounts which show where payments have been made. Where voucher schemes are applied outside the Community, in the case of 'money-off' vouchers, arrangements must be made with foreign retailers; in both 'money-off' and 'cash-back' schemes, payments in order to be any kind of incentive to purchase must be made in a non-Community currency. Both those factors should make control by the revenue authorities relatively easy to achieve.

85Thus it seems that the kind of conditions envisaged by Article 11(C)(1) of the Sixth Directive are appropriate and sufficient to prevent any unjustified claims or loss of tax revenue.

86The German Government also claims that the same problem would arise in the case of exempt transactions within the Community — if, say, the supply by C to D were an exempt transaction, whereas the supply by A to B had been a taxable transaction.

87In such cases, C will not have been able to deduct any input tax but the price of the final transaction is none the less deemed not to include any VAT. The answer is however the same: since D's purchase price does not include VAT, any reduction or partial repayment of that price cannot include any VAT either and A cannot adjust his output tax.

88In any event, the nature of voucher 28 schemes is such that it is very difficult to see any likelihood of their being used in relation to transactions which are or may be exempted from VAT under Article 13 of the Sixth Directive.

— Payments made to a 'final' consumer who is a taxable person

89The second type of situation to which the German Government refers is where D, who benefits from the price reduction offered by A, is not a true final consumer but a taxable person who uses the item acquired for the purpose of his own taxable outputs. In the scenario to which it objects, D acquires an item at a price of 330, including tax, uses the item for the purpose of his own outputs, and thus deducts input tax of 30 from his output tax. However, if he receives a promotional payment of 11 from A and A is allowed to reduce his own output tax by 1 on that account, D will have been allowed to deduct an amount of VAT which is neither due nor paid.

90Again, the scenario set out involves a true loss of tax revenue.

91Again, the Commission objects that such scenarios are extremely uncommon in practice and it may be right — up to a point. If D uses A's goods to more than a fairly marginal extent for his own taxable outputs, he is less likely to source them through intermediaries — he will presumably seek to obtain them at the lowest cost possible, ideally directly from A. However, it is not difficult to imagine that a manufacturer of goods used by, say, small artisans may sell only through wholesalers but may none the less operate a 'cash-back' scheme to reward artisans who purchase those goods.

92However, again it does not seem to me to be unduly difficult to counteract the kind of loss of tax revenue envisaged. First of all, I disagree with the German Government's view that D is entitled to deduct the full input tax of 30 invoiced to him by C from his own output tax. Once it is accepted that A may reduce his output tax by 1, it must also be accepted that D's input tax is deemed to be reduced by 1 when he receives A's promotional payment of 11. If D is a taxable person, he must keep proper accounts of his inputs and outputs, and failure to record such promotional payments will amount to a fraud.

93The German Government may fear that such frauds will be difficult to detect, and the requirement to account for promotional payments difficult to enforce. However, that will normally only be the case in exceptional circumstances. Taxable persons generally do not obtain their supplies item by item at retail outlets — a practice which is likely to increase their costs, compared to purchasing in larger quantities from wholesalers or similar specialist suppliers, to a greater extent than will usually be offset by exploiting any VAT loophole involving the use of 'cash-back' or 'money-off' vouchers. In normal circumstances, controls should not be too difficult to put in place. Where 'cash-back' vouchers are concerned, A's accounts must presumably record any payments made to D. In the case of 'money-off' schemes, which are in any event unlikely to contain a 'leapfrog ging' element, C could be required to mention on any invoice to D the fact that a voucher was accepted in part-payment for the goods.

— Double deduction of VAT

94In addition, the German Government puts forward a further way in which, it claims, tax revenue is lost. In the case of 'money-off' vouchers, it argues, the fact that the net value of the voucher cannot be included in C's taxable amount, as confirmed by the Court in Boots and Argos, coupled with the reduction of A's taxable amount, would lead to a double deduction and a loss of tax revenue.

95Here, I believe the German Government to be mistaken in referring to Boots and Argos in the present context, as those cases did not concern 'leapfrogging' payments of the kind in issue. As the Commission points out, in the type of situation with which we are concerned, the net value of the voucher should be included in C's taxable amount. C actually receives that amount from A (as consideration obtained from a third party, in accordance with Article 11(A)(1)(a)), so that there is only a single deduction. This does not conflict with the approach taken in different economic circumstances in Boots, where the value of the voucher was not to be included in the retailer's taxable amount because it was a reduction granted by the retailer himself, or in Argos, where the voucher was redeemed directly by the manufacturer in exchange for the goods he supplied.

Distortion of competition

96Finally, the German Government alleges that the Elida Gibbs approach distorts competition in two types of case in that the tax treatment of voucher schemes (which use only A's own financial resources) is more favourable than that of other promotional schemes from which other operators may benefit.

97I am not convinced that any tax incentive to operators to use their own resources rather than to deal with others would necessarily be a distortion of competition, but it might admittedly entail less trade rather than more. In any event, it seems to me either that no such incentive exists or that its effect is likely to be negligible; where it exists, it appears justified by the provisions of the Sixth Directive.

— Comparison with advertising

98The German Government argues that the aim of voucher schemes operated by manufacturers is to increase sales without reducing retailers' takings on each sale. They are promotional measures undertaken at the manufacturer's choice and expense and as such are alternatives to advertising campaigns. If the manufacturer is allowed to reduce his taxable amount in the case of a voucher scheme, he will be more likely to make that choice, thus distorting competition to the detriment of advertising agencies.

99The Commission points out that, with regard to the choice between a voucher scheme and advertising, the German Government bases its argument on figures which confuse tax-inclusive and tax-exclus ive prices.

100I agree with the Commission. If A decides to pay 11 to D, and is allowed to reduce his output tax by 1, every time D buys one of his products, that is no different, as regards VAT, from a situation in which he decides to spend the same amount on advertising his products. If A spends 11 on advertising services, that sum will include VAT of 1 which is, from A's point of view, input tax which he may deduct from his output tax. In both situations, although the mechanisms are different, the result is that A pays 1 less in output tax. For A, the VAT position is thus entirely neutral as regards the choice of promotional method, and there is no financial incentive for him to choose one method rather than the other — and thus no apparent distortion of competition.

101The tax authorities will indeed receive slightly less overall if he chooses to use a voucher scheme but, unless A's resentment is so great that he systematically chooses the solution least advantageous to them whilst maintaining his own position, there is no VAT reason for him to eschew the services of advertising agencies. His decision is far more likely to be taken on the basis of the expected effects on sales.

— Comparison with free gift schemes

102The German Government argues that allowing A to reduce his output tax as a result of promotional payments of the kinds in issue would give rise to a divergence of treatment between such voucher schemes and the type of 'free gift' scheme considered by the Court in Kuwait Petroleum.

103In that case, a petrol company offered customers a stamp with every 12 litres of fuel purchased. Once a certain number of stamps had been collected, they could be exchanged for 'free gifts' from a special catalogue. The Court held that the fact that no charge was made for the 'gifts' could not be regarded as constituting a rebate or price discount within the meaning of Article 11(A)(3)(b) of the Sixth Directive, and that the supply of those 'gifts', unless they were of small value, must be treated as a supply made for consideration and thus a taxable transaction.

104Thus, such a supplier is required to account for VAT on the value of the supply of the 'gifts', but is also entitled to deduct the input tax incurred on their acquisition. The result would appear to be neutral from the VAT point of view; since no value is added the two amounts will cancel out completely.

105According to the German Government's argument, if A decides on a 'free gift' scheme, he purchases the 'gifts' at a net price of 10, on which he will be charged 1 in VAT. He then supplies them to D in a transaction which is deemed to be for consideration. Since no value has been added, the deemed consideration will still be 10 and the output VAT 1. After deduction of the input tax, the net effect on A's VAT will be 0. If he decides on a 'cash-back' or 'money-off' scheme, he offers D a discount or refund of 11, made up of a net price reduction of 10 and a corresponding VAT reduction of 1. The net effect on his VAT, in accordance with Elida Gibbs, will be a reduction of his output tax by 1.

106There is indeed a difference in fiscal treatment here, but as the Commission points out that difference in treatment is inherent in the provisions of the Sixth Directive. It is clear from 11(A)(3)(b) and (C)(1) that discounts and rebates are not to be included in the taxable amount, whether allowed at the time of supply or subsequently. It is also clear from those provisions and from Article 5(6), as interpreted by the Court in Kuwait Petroleum, that the supply of goods (such as 'free gifts') free of charge for business purposes is a supply for consideration, the taxable amount being their cost price, and there is no discount or rebate in such circumstances. The two types of scheme fall under different provisions, which explains the difference in treatment. As the Commission pointed out at the hearing, one scheme involves supplying more goods at the same price, the other involves supplying the same goods at a lesser price.

107Furthermore, I consider that the German Government has not established that such difference in treatment will lead to any distortion of competition. It is true that if A were led by fiscal considerations to favour 'money-off' or 'cash-back' rather than 'free gift' schemes, suppliers of items used as 'free gifts' would do less business. However, A will presumably choose between different types of promotional scheme in the light of their net cost to him and their effect on sales; he will choose the scheme which encourages D to buy most at the least cost to him (A). There is no reason to suppose that D will always find a scheme offering a tax-inclusive reduction or refund of 11 more attractive than one offering a 'free gift' whose tax-inclusive value is 11.

Final considerations

108The arguments in this case are not unevenly balanced. The Commission has put forward convincing reasoning to support the view that, even had the Court not delivered its judgment in Elida Gibbs in those terms, the VAT on A's supply to B should, on the principles of the Sixth Directive, take account of the reduction paid out by A to C or D, and the total amount of VAT levied on the whole chain of supply should be proportional to the amount actually paid by the final consumer. The German and United Kingdom Governments have pointed to structural and practical problems in that approach, which cannot be dismissed out of hand.

109I none the less consider that the Commission's point of view should prevail.

110First and foremost, I take the view that, in the event of an otherwise irreconcilable difference, the requirement that the amount of VAT levied should be the correct proportion of the actual value finally received by the supplier (and, for the chain as a whole, of the final price) should be given greater weight than structural requirements. In other words, achievement of the end is more important than implementation of the means designed to achieve it.

111Furthermore, the structural and practical problems in question are not insuper able. I have suggested certain solutions in the course of this Opinion and it appears from what has been said in the course of the pleadings and at the hearing that the legislation of all the Member States has now been brought into line with the judgment in Elida Gibbs, with the sole exception of Germany. Only one other Member State has considered that the difficulties involved in that alignment warranted intervention in Germany's support in the present case.

112In those circumstances, it seems to me that the interpretation adopted by the Court in Elida Gibbs should not be over turned without some overriding justification. The concerns put forward by Germany and the United Kingdom, while real, are not such as to convince me that the present situation is irreconcilable with the fundamental principles of the VAT system or gives rise to insoluble problems in preventing any unjustified loss of tax revenue. That being so, I consider that it would in any event be wholly disproportionate to require — as would be the case if Elida Gibbs were overturned — all the remaining Member States to amend anew their VAT legislation, which appears to be operating satisfactorily.

COMMISSION' v GERMANY

Conclusion

Conclusion

113I am accordingly of the opinion that the Court should

(1) declare that, by failing to adopt provisions enabling a supplier's basis of assessment to be adjusted when he redeems vouchers accepted in part payment of his goods by a subsequent trader, even when he did not supply the goods directly to that trader, the Federal Republic of Germany has failed to fulfil its obligations under Article 11 of the Sixth VAT Directive;

(2) order the Federal Republic of Germany to bear the costs of the proceedings, except those of the United Kingdom, which must bear its own costs.

Notes

(1) Original language: English.

(2) 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').

(3) Case C-317/94 Elida Gibbs [1996] ECR I-5339.

(4) First Council Directive 67/227/EEC of 11 April 1967 on the harmonisation of legislation of Member States concerning turnover taxes, OJ, English Special Edition 1967, p. 14 ('the First Directive').

(5) In discussions of the relationship between two transactions of which one is a cost component of the other, the former is commonly referred to as an 'input' and the latter as an 'output', the VAT on each being referred to respectively as 'input tax' and 'output tax'.

(6) With the apparently paradoxical exception of exempt transactions, which may m certain circumstances require a supplier to hear some non-deductible VAT burden. However, exempt transactions are not in issue in the present case.

(7) Cited above in nore 3.

(8) Tile term 'cash-back' is also used (at least in the United Kingdom} for a different kind of commercial practice. When a customer pays by credit or debit card, retailers may offer to charge to the card an amount greater than that required to pay for the goods sold, and to hand the customer cash equivalent to the difference between the two sums. This pragmatic arrangement has no VAT repercussions whatever and is entirely distinct from the price refund schemes in issue in Elida Gibbs (and in the present case), regardless of the fact that the term 'cash-back' may be used for both.

(9) See paragraphs 18 to 25 of the judgment.

(10) Case 89/81 Hong Kong Trade [1982] ECR 1277), paragraph 13 of the judgment, Case 230/87 Naturally Yours Cosmetics [1988] ECR 6365, paragraph 16, and Case

(126) /98 Boors [1990] ECR 1-1235, paragraph 19.

(11) Paragraphs 28 to 30.

(12) Paragraph 31.

(13) Paragraphs 32 and 33.

(14) Affirmed in a circular dated 15 April 1998 from the Federal Finance Ministry to the tax authorities of the Länder.

(15) By letter of 4 October 1999. The Commission states that the French authorities adopted administrative instructions on 8 November 1999 bringing their practice into line with the judgment in Elida Gibbs.

(16) That situation is currently under consideration by the Court in Case C-398/99 Yorkshire Cooperatives, in which Advocate General Stix-Hackl delivered her Opinion today. COMMISSION v. GERMANY

(17) Although it appears that the United Kingdom has in fact brought its legislation into line with the judgment and that Germany is now the only Member State not yet to have complied with it.

(18) Less input tax on any items used for the purposes of his supply, but it will be simpler to assume for present purposes that there are none.

(19) I am adjusting the figures used by the Commission to fit my basic example given above.

(20) Case C-48/97 Kuwait Petroleum [1999] ECR I-2323, at paragraph 44 of the Opinion.

(21) At paragraph 27 of the judgment.

(22) See, for example. Case C-258/95 Fillibeck [1997] ECR I-5577, paragraph 13 of the judgment, and most recently the judgment of 29 May 2001 in Case C-86/99 Freenuins, paragrapli 27.

(23) That is to say, in the situation under consideration in Yorkshire Cooperatives; see note 16.

(24) Case 342/87 Genius Holding [1989] ECR 4227.

(25) Case C-454/98 Schmeink & Cofreth and Strobel [2000] ECR 1-6973.

(26) See paragraphs 75 to 95.

(27) Joined Cases C-286/94, C-340/95, C-401/95 and C-47/96 Molenheide and Others |1997| ECR I-7281, paragraphs

(47) and 48 of the judgment.

(28) See my remarks in paragraph 31 above.

(29) Case 126/88, cited above in note 10, and Case C-288/94 Argos Distributors [1996] ECR I-5311.

(30) Cited above in note 20.

(31) In accordance with Article 5(6) of the Sixth Directive, which states: 'The application by a taxable person of goods forming part of his business assets for his private use or that of his staff, or the disposal thereof free of charge or more generally their application for purposes other than those of his business, where the value added tax on the goods in question or the component parts thereof was wholly or partly deductible, shall be treated as supplies made for consideration. However, applications for the giving of samples or the making of gifts of small value for the purposes of the taxable person's business shall not be so treated'.