C-429/97 Commission v France

JUDGMENT OF THE COURT (Sixth Chamber)

25 January 2001 *

In Case C-429/97,

Commission of the European Communities, represented by H. Michard and E. Traversa, acting as Agents, with an address for service in Luxembourg,

applicant,

v

French Republic, represented initially by K. Rispal-Bellanger and G. Mignot, then by K. Rispal-Bellanger and S. Seam, acting as Agents, with an address for service in Luxembourg,

defendant,

APPLICATION for a declaration that, by refusing to refund value added tax to taxable persons not established in France, in cases where those taxable persons had subcontracted part of their work to a taxable person established in France, the French Republic has failed to fulfil its obligations under the Eighth Council Directive 79/1072/EEC of 6 December 1979 on the harmonisation of the laws of

* Language of the case: French.

the Member States relating to turnover taxes — Arrangements for the refund of value added tax to taxable persons not established in the territory of the country (OJ 1979 L 331, p. 11), in particular Article 2 thereof,

THE COURT (Sixth Chamber),

composed of: C. Gulmann, President of the Chamber, V. Skouris (Rapporteur) and J.-R Puissochet, Judges,

Advocate General: N. Fennelly, Registrar: L. Hewlett, Administrator,

having regard to the Report for the Hearing,

after hearing oral argument from the parties at the hearing on 18 November 1999,

after hearing the Opinion of the Advocate General at the sitting on 13 January 2000, gives the following

Judgment

Legal context and the dispute

1By application lodged at the Court Registry on 18 December 1997, the Commission of the European Communities brought an action under Article 169 of the EC Treaty (now Article 226 EC) for a declaration that, by refusing to refund value added tax (hereinafter 'VAT') to taxable persons not established in France, in cases where those taxable persons had subcontracted part of their work to a taxable person established in France, the French Republic has failed to fulfil its obligations under the Eighth Council Directive 79/1072/EEC of 6 December 1979 on the harmonisation of the laws of the Member States relating to turnover taxes — Arrangements for the refund of value added tax to taxable persons not established in the territory of the country (OJ 1979 L 331, p. 11, hereinafter 'the Eighth Directive'), in particular Article 2 thereof.

The legal background

The Community legislation

The Eighth Directive

2According to the second recital in the preamble thereto, the Eighth Directive is intended to ensure that a taxable person established in the territory of one Member State can claim for tax which has been invoiced to him in respect of supplies of goods or services in another Member State, thereby avoiding double taxation.

3Article 1 of the Eighth Directive states:

'[f]or the purposes of this Directive, "a taxable person not established in the territory of the country" shall mean a person as referred to in Article 4(1) of Directive 77/388/EEC who, during the period referred to in the first and second sentences of the first subparagraph of Article 7(1), has had in that country neither the seat of his economic activity, nor a fixed establishment from which business transactions are effected, nor, if no such seat or fixed establishment exists, his domicile or normal place of residence, and who, during the same period, has supplied no goods or services deemed to have been supplied in that country...'.

4Article 2 of the Eighth Directive provides:

'[e]ach Member State shall refund to any taxable person who is not established in the territory of the country but who is established in another Member State, subject to the conditions laid down below, any value added tax charged in respect of services or movable property supplied to him by other taxable persons in the territory of the country or charged in respect of the importation of goods into the country, in so far as such goods and services are used for the purposes of the transactions referred to in Article 17(3)(a) and (b) of Directive 77/388/EEC and of the provision of services referred to in Article 1(b).'

The Sixth Directive

5Article 9(1) of the Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment (OJ 1977 L 145, p. 1, hereinafter 'the Sixth Directive') provides:

'[t]he place where a service is supplied shall be deemed to be the place where the supplier has established his business or has a fixed establishment from which the service is supplied or, in the absence of such a place of business or fixed establishment, the place where he has his permanent address or usually resides.'

6Article 9(2) of the Sixth Directive is worded as follows:

'...

(c) the place of the supply of services relating to:

— work on movable tangible property,

shall be the place where those services are physically carried out'.

The national legislation

7In France, the fourth indent of Article 9(2)(c) of the Sixth Directive is transposed by Article 259 A 4° of the Code General des Impôts (General Tax Code). In the wording thereof which is applicable to this case, that provision states:

'[b]y derogation from the provisions of Article 259, the place of supply of the following services shall be deemed to be in France:

4. The following services where they are physically carried out in France:

work on and valuations of movable tangible property'.

8The file shows that a circular from the French tax legislation service, concerning the rules applicable to waste disposal operations in France and to transport services on importation supplied in connection therewith, was sent to all French departments responsible for applying VAT. That circular states, in particular, that 'disposal operations are covered by Article 259 A 4° of the Code Général des Impôts which transposes into French law Article 9(2)(c) of the Sixth Directive [... and] are subject to VAT in France in cases where they are physically carried out there. Those provisions apply to an operation carried out by a site operator who does the work himself. They also apply to the service which the undertaking holding the disposal contract supplies to its customers, provided that that undertaking invoices them with the total amount for the operation, the main element of which is the price which it is charged by the site operator. The fact that that undertaking does not carry out the physical disposal operations itself but entrusts them to another undertaking does not affect those provisions...'.

The facts and the pre-litigation procedure

9The file shows that the French authorities refuse to confer the benefit of the provisions of the Eighth Directive on undertakings entrusted with the collection, sorting, transport and disposal of waste which are established in another Member State and use French subcontractors to dispose of part of that waste.

10Those undertakings holding the main contract for the collection and disposal of waste invoiced their service customers, pursuant to Article 9(1) of the Sixth Directive, with the VAT of the Member State of their establishment in respect of the total amount of the price. They also paid the French VAT which they were invoiced by their subcontractors established in France.

11When the main contractors subsequently claimed refunds of the VAT thus paid, they met with refusals on the part of the French authorities on the ground that, under Article 259 A 4° of the Code Général des Impôts, as interpreted by those authorities, the main contractors themselves are deemed to have carried out in France the whole of their supply of services relating to the waste, since the physical disposal of that waste, which constitutes the main and decisive element of that supply and its price, is carried out in France; consequently, in the view of those authorities, the Eighth Directive cannot possibly apply.

12The undertakings in question were then invited to have a tax representative accredited to the French tax authorities, to be responsible for paying the VAT due in respect of operations deemed to have been carried out in France.

13By letters of 23 September and 22 December 1992, the Commission asked the French authorities for a detailed explanation of their reasons for regarding the provisions of the Eighth Directive as inapplicable in this case. It pointed out that the matter goes far beyond the field of waste disposal since it concerns the more general issue of which VAT rules are applicable to composite operations involving operators established in several Member States.

14At a meeting on 17 November 1992 between Commission staff and the French authorites, and by letter of 5 January 1993, the latter made known their views on the matter.

15Taking the view that the refusal to refund French VAT constitutes a breach of the Eighth Directive, the Commission initiated the procedure provided for in Article 169 of the Treaty and, by letter of 8 June 1993, gave the French Government formal notice to submit its observations to it within two months from the receipt of that letter.

16In that letter, the Commission pointed out, in particular, that, in the case of a contract covering the supply of different types of service, such as the collection, sorting and disposal of waste, it was necessary to apply the general rule laid down in Article 9(1) of the Sixth Directive, which provides for taxation in the Member State of establishment of the taxable person; that rule makes it possible to ensure the uniform taxation of the whole of the service rendered by the service provider to its customer. However, in so far as one of those services, namely, waste disposal, is regarded as 'work on movable tangible property' within the meaning of Article 9(2)(c) of the Sixth Directive, and that service is performed by a subcontractor separate from the main contractor, it should be subject to VAT in the Member State where it is physically carried out, namely, in this case, France. Although the collection of French VAT is therefore justified, the foreign undertaking which bore it should be able to obtain a refund of that VAT in France, in accordance with the Eighth Directive.

17By letter of 6 August 1993 the French authorities replied to the letter of formal notice, confirming their view and explaining that the various operations effected by the foreign undertaking constitute a single waste disposal operation which is carried out only at the end of the treatment process, that the self-contained nature of the contract concluded between the foreign undertaking and its French subcontractor does not alter the nature of the service provided and that no 'residual' tax arises, inasmuch as the foreign company can recover its input tax by way of deduction.

18On 10 April 1996 the Commission sent the French Republic a reasoned opinion confirming its position that it was unable to share that Member State's interpretation of the fourth indent of Article 9(2)(c) of the Sixth Directive and requesting it to take the measures necessary to comply with that opinion within two months from its notification.

19The French authorities did not comply with the reasoned opinion, but, by letter of 12 June 1996, replied to the Commission, justifying their position.

20That being the situation, the Commission brought the present action.

Admissibility

21The French Government raises an objection of partial inadmissibility of the action in so far as it goes beyond the case of services relating to waste disposal.

22First, in so far as it concerns the supply of services other than those relating to waste disposal, the action is inadmissible in that it is not founded on any specific complaint against the French Republic. Nowhere in the application are matters of law or of fact set out in support of the Commission's claim that there has been a general failure by that Member State to fulfil its obligations under the Eighth Directive in cases other than that of the supply of services supplied relating to waste disposal.

23Second, that part of the action is also inadmissible in so far as, by not indicating at any stage during the pre-litigation procedure which provision of national law or which administrative practice it was calling in question in order to claim the existence of a general breach of obligations, the Commission failed to have regard to the purpose of that pre-litigation procedure, which, as the Court has consistently held, is to give the Member State concerned an opportunity, on the one hand, to comply with its obligations under Community law and, on the other hand, to make proper arrangements for its defence against the complaints made by the Commission.

24The Commission contends that the action is admissible, submitting, first, that the French authorities' interpretation, as implemented in connection with waste disposal operations, concerns the general and fundamental question regarding the application of the provisions of Article 9 of the Sixth Directive to composite operations, where a subcontractor established in a different Member State from the main contractor carries out, on behalf of the latter, part of the operation in France. Second, there has been no infringement of the right of the French Government to a fair hearing since the grounds for complaint were not expanded or altered in the course of the procedure.

25In order to rule on the objection raised by the French Government, including the part thereof relating to non-observance of the right to a fair hearing, it must first be determined whether, in so far as it goes beyond the case of services relating to waste disposal, the Commission's action is founded on specific matters of law and of fact. That question is covered by the examination of the substance of the action brought by the Commission.

26The objection of inadmissibility raised by the French Government must therefore be examined together with the substance of the action.

Substance

27The Commission alleges failure by the French Republic to fulfil its obligations under the Eighth Directive, in particular Article 2 thereof, inasmuch as it refuses to refund to taxable persons not established in France the VAT paid by them in France in cases where they have subcontracted part of their work to a taxable person established in France.

28The effect of Articles 1 and 2 of the Eighth Directive is that a taxable person is entitled to a refund of VAT paid in another Member State if he does not have a business or fixed establishment in that State and if he has supplied no goods or services there.

29In order to determine more specifically whether a service has been supplied in a Member State, reference must be made to Article 9 of the Sixth Directive.

30Under Article 9(1), the place where a service is supplied is deemed to be the place where the supplier has established his business or has a fixed establishment.

31Paragraph 2 of that article sets out a series of specific instances of places where certain categories of service are deemed to be supplied. Thus, that provision states, in the fourth indent of subparagraph (c), that the place of supply of services relating to work on movable tangible property is the place where those services are physically carried out.

32In this case, the parties disagree as to the place with which a composite supply of services comprising various operations relating to waste — such as the collection, sorting, transport, storage, treatment, recycling and actual disposal, etc. — is to be connected where the main contractor for that supply is established in a Member State, other than the French Republic, in which, amongst other things, some of those operations are carried out, whereas the actual disposal of the waste takes place partly in France where it is carried out by a subcontractor. It is not disputed that the services supplied by the latter must be subject to French VAT. The question which arises is to determine the place of the composite supply viewed as a whole.

33According to the Commission, since Article 9(2) of the Sixth Directive does not contain any specific rule of connection for such a composite supply of services, the place where such services are supplied must be that laid down in paragraph 1 of that provision, that is to say, the place where the contractor has established his business.

34The Commission maintains in this regard that such a composite supply involves a set of different operations in succession, only some of which consist of 'work on movable tangible property' within the meaning of the fourth indent of Article 9(2)(c) of the Sixth Directive, and all of which alike form part of the waste disposal process. When the waste disposal contractor agrees to dispose of his customers' waste, the contract in question applies to all those operations. The fact that the main contractor then uses the services of a subcontractor in another Member State in order to carry out one part of the process, consisting of the final disposal of the waste remaining after the various upstream operations — such as the collection, sorting, treatment and recycling — have been carried out, cannot alter the rules governing the place where services, as defined in Article 9 of the Sixth Directive, are to be deemed to be supplied.

35In particular, it argues, it is not possible to single out, as the French Republic does, one of the operations in the process, which took place in a Member State other than that of the main contractor, on the ground that that operation, the actual disposal of the waste, is decisive from the point of view of the customer or even for achieving the objective of the composite supply.

36By contrast, the French Government contends that the service supplied by the contractor to its customer is invoiced to the latter on an aggregate and inclusive basis and, in actual fact, forms a whole which constitutes a single and aggregate supply of 'a service of waste management'. It refers in particular to the definition of 'waste management' in Article 1(d) of Council Directive 75/442/EEC of 15 July 1975 on waste (OJ 1975 L 194, p. 39), as amended by Council Directive 91/156/EEC of 18 March 1991 (OJ 1991 L 78, p. 32), according to which management means 'the collection, transport, recovery and disposal of waste, including the supervision of such operations and after-care of disposal sites'.

37It further contends that, in accordance with the case-law (see the 'Advertising services' cases, in particular Case C-68/92 Commission v France [1993] ECR I-5881, paragraphs 18 and 19), the characterisation of such a supply of services must be determined in the light of the purpose pursued by it, namely, in this case, the disposal or recovery of the waste produced by the customer, which constitutes work on movable tangible property. Consequently, the activity in question should be characterised as 'the supply of services relating to... work on movable tangible property' within the meaning of the fourth indent of Article 9(2)(c) of the Sixth Directive and should therefore be taxed at the place where the disposal was physically carried out.

38The conclusion with regard to characterisation of the service supplied would not be different if, as the Commission suggests, the various operations which take place as part of that supply were taken into consideration. All those operations constitute work on movable tangible property.

39Consequently, even if the French Republic does not systematically tax the whole of the supply for which the main contractor is responsible, the service which the latter renders to his customer must be deemed to have been performed in France if the actual disposal of the waste is carried out there, which precludes the application of, at the very least, one of the conditions laid down in Article 1 of the Eighth Directive and, by that very fact, the refund of VAT paid in France. The fact that the main contractor entrusts the physical performance of the contract to a subcontractor cannot change anything as regards the determination of the place of the supply of services effected by the main contractor.

40It should be pointed out, first, that where, as in this case, it is necessary to characterise, for the purposes of VAT, a composite supply taken as a whole, the connection of that supply with Article 9(1) or with the fourth indent of Article 9(2)(c) of the Sixth Directive must be such as to ensure its rational and uniform taxation.

41Second, it must be borne in mind that, as regards the relationship between Article 9(1) and Article 9(2) of the Sixth Directive, the Court has already held that Article 9(2) sets out a number of specific instances of places where certain services are deemed to be supplied, whereas Article 9(1) lays down the general rule on the matter. The object of those provisions is to avoid, first, conflicts of jurisdiction, which may result in double taxation, and, second, non-taxation, as Article 9(3) indicates, albeit only as regards specific situations. In every situation, the question which arises is whether it is covered by one of the instances mentioned in Article 9(2); if not, it falls within the scope of Article 9(1) (see Case C-327/94 Dudda v Finanzamt Bergisch Gladbach [1996] ECR I-4595, paragraphs 20 and 21).

42It must therefore be ascertained whether the composite supply at issue in this case is, as the French Government contends, specifically governed by the fourth indent of Article 9(2)(c) of the Sixth Directive, concerning the supply of services relating to work on movable tangible property. To that end, it is appropriate to take account of all the elements which characterise that supply.

43Thus, the file shows that it is carried out by undertakings which agree, under contracts entered into with local authorities, industrial undertakings and public or private bodies, to collect, sort, transport and dispose of waste and household refuse. In particular, under those contracts, the undertakings providing the services are required to draw up a collection plan, select the collection points, organise the transport of the waste, store it, organise the sorting operations, choose the methods of disposing of the sorted waste, transport the various types of waste to the various disposal sites, destroy part of it, recover some of that waste and, where appropriate, use the services of other undertakings, specialising, inter alia, in the disposal of certain types of waste.

44The file also shows that the undertakings holding those contracts are established in a Member State other than the French Republic. The same is true of their customers. In addition, with the exception of the disposal of certain types of waste, which is entrusted to specialist subcontractors established in France, all the abovementioned operations comprising the composite supply are carried out in the other Member State. It is in that same State that the main contractors organise the resources at their disposal and employ their know-how in order to ensure the proper performance of their contracts.

45Furthermore, the main contractors invoice their customers with the price corresponding to the whole of their composite supply, including in respect of the part which they have subcontracted to a French undertaking. That price includes the VAT which they have had to pay in respect of the whole of their supply.

46In the light of those factors, to regard such a composite supply as covered by the fourth indent of Article 9(2)(c) of the Sixth Directive would amount to making it subject, for the purposes of VAT, to the legislation of the Member State in which it is physically carried out. However, in view of the composite nature of that supply, the effect of applying such a connecting factor would be to create uncertainty as to the rate of VAT at which the main contractor must invoice his customers whenever any of the operations comprising the composite supply takes place in a Member State other than that in which the main contractor is established.

47For the same reason, the application of that connecting factor would be liable to create conflicts of jurisdiction between Member States, which would run counter to the objectives of Article 9 of the Sixth Directive, including, therefore, that of the fourth indent of Article 9(2)(c).

48It follows that such a supply cannot be governed by the fourth indent of Article 9(2)(c) of the Sixth Directive, regardless of whether the actual disposal of the waste constitutes work on movable tangible property within the meaning of that provision.

49On the other hand, the general rule set forth in Article 9(1) of the Sixth Directive lays down a definite, simple and practical criterion for the connection of that type of supply, which is that of the place where the supplier has established his business or has a fixed establishment from which the service is supplied. In view of the factors mentioned in paragraphs 43 to 45 of this judgment, that provision is such as to ensure the rational and uniform taxation of the composite supply taken as a whole and to avoid conflicts of jurisdiction between Member States.

50The composite supply in question therefore falls within the scope of Article 9(1) of the Sixth Directive.

51The French Government objects that such an interpretation may result in non-taxation in certain cases. Thus, where the main contractor is established outside the Community, the service arising from the main contract could not be subject to any taxation within the Community, even though the supply is physically performed there by a subcontractor and the service is actually enjoyed there, that is to say, the waste is actually disposed of or recovered within the Community.

52The argument put forward by the French Government cannot call in question the finding made in paragraph 50 of this judgment. The hypothetical situation contemplated by that government concerns a possibility which arises from the limits of the geographical scope of the Community rules on VAT and for that reason cannot affect the interpretation of Article 9 of the Sixth Directive.

53It follows from the foregoing that, where the holder of the main contract for a composite supply of services relating to waste disposal has its business or a fixed establishment in a Member State other than the French Republic, the services which it performs are deemed to be supplied in the first State, even if it entrusts the actual disposal of the waste to a subcontractor, who is a taxable person for the purposes of VAT in France, whilst paying the corresponding VAT. Since the conditions to which the refund of VAT is subject under the Eighth Directive are thus fulfilled, the main contractor is justified in subsequently claiming, on the basis of Article 2 of the Eighth Directive, the refund of the VAT paid in France.

54It must therefore be held that, by refusing to refund to taxable persons established in a Member State other than the French Republic, who are holders of a main contract for a composite supply of services relating to waste disposal, the VAT which they have been required to pay to the French State in cases where they have subcontracted part of the work covered by such a contract to a taxable person established in France, the French Republic has failed to fulfil its obligations under the Eighth Directive, in particular Article 2 thereof.

55Finally, it remains to consider the objection raised by the French Government to the action, claiming that it goes beyond the case of services relating to waste disposal.

56The file shows that the Commission set out in general terms the conclusions of the reasoned opinion which it sent to the French authorities and that it reproduced that wording in the form of order sought in its application. However, it must be pointed out that, both during the pre-litigation procedure and in the action brought before the Court, the whole of the argument put forward by the Commission covered only the supply of services relating to waste disposal and that it did not refer to any matters of fact or of law intended to show that the French authorities had failed to fulfil their obligations arising from the Eighth Directive in respect of cases other than that relating to waste disposal.

57Consequently, the remainder of the application must be dismissed.

Costs

Costs

58Under 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 has applied for costs and the French Republic has been largely unsuccessful, the latter must be ordered to pay the costs.

Operative part

On those grounds,

THE COURT (Sixth Chamber)

hereby:

1. Declares that, by refusing to refund to taxable persons established in a Member State other than the French Republic, who are holders of a main contract for a composite supply of services relating to waste disposal, the value added tax which they have been required to pay to the French State in cases where they have subcontracted part of the work covered by such a contract to a taxable person established in France, the French Republic has failed to fulfil its obligations under the Eighth Council Directive 79/1072/ EEC of 6 December 1979 on the harmonisation of the laws of the Member States relating to turnover taxes — Arrangements for the refund of value added tax to taxable persons not established in the territory of the country, in particular Article 2 thereof;

2. Dismisses the remainder of the application;

3. Orders the French Republic to pay the costs.

Gulmann Skouris Puissochet Delivered in open court in Luxembourg on 25 January 2001. R. Grass

Registrar

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C. Gulmann

President of the Sixth Chamber

OPINION OF ADVOCATE GENERAL FENNELLY delivered on 13 January 2000 1

Introduction

1This infringement action concerns the treatment of cross-border transactions under the Community VAT system. France is refusing to make refunds pursuant to the Eighth VAT Directive of French VAT paid by German waste-disposal contractors in respect of upstream services provided to them by French-based subcontractors. The Eighth Directive provides, where it applies, for a refund of VAT paid by a taxable person in another Member State instead of for the deduction of that amount as an input. The solution to the problem depends on the interpretation of the tax-localising rules governing supplies of services contained in Article 9 of the Sixth VAT Directive.

I — The legal and factual background

2The purpose of the Eighth Directive is stated in the second recital in its preamble as being to '... ensure that a taxable person established in the territory of one member country can claim for tax which has been invoiced to him in respect of supplies of goods or services in another Member State or which has been paid in respect of imports into that other Member State, thereby avoiding double taxation'. Articles 1 and 2 of the Eighth Directive lay down two conditions to be fulfilled to establish the right to a refund. First, the claimant must be established in the territory of another Member State and not have the seat of his economic activity, or a fixed establishment whence his business activities are effected, in the Member State from which the refund is requested, and, secondly, he must not, in the relevant period, have 'supplied ... services deemed to have been supplied in that country'. The right to a refund extends to VAT 'charged in respect of services ... supplied to him by other taxable persons in the territory of the country [from which the refund is sought], in so far as such ... services are used [for the purposes of his economic activities in his Member State of establishment]'. In order

I - 6 39 to determine whether such a claimant may be deemed to have supplied services in the Member State in question, it is necessary to consider the place-of-supply rules set out in the Sixth Directive.

3Article 9 of the Sixth Directive is concerned with the place of supply of services. Article 9(1) lays down a general rule that:

'The place where a service is supplied shall be deemed to be the place where the supplier has established his business or has a fixed establishment from which the service is supplied or, in the absence of such a place of business or fixed establishment, the place where he has his permanent address or usually resides'.

However, Article 9(2) contains a number of specific rules for certain categories of services. Article 9(2)(c) enumerates a number of broad categories of services whose place of supply is deemed to be 'the place where those services are physically carried out'. The relevant category in the present case is that covered by the fourth indent of Article 9(2)(c), which concerns 'work on movable tangible property'.

4This provision has been implemented in ° French law by Article 259-A-4 of the Code General des Impôts (General Tax Code, hereinafter 'the CGI'), under which the place of supply of services physically carried out in France, including 'work and valuations on/of movable tangible property', is deemed to be in France. It is not contested that this provision properly transposes Article 9(2)(c), fourth indent, into French law. However, the present dispute arises from an administrative circular (hereinafter 'the circular') adopted in 1992 by the tax-legislation department of the French fiscal administration and addressed to all departments of the national administration responsible for applying VAT. In respect of waste-treatment contracts, the circular instructs the authorities concerned that, pursuant to Article 9(2)(c) e of the Sixth Directive and Article 259-A-4 of the CGI, not only must waste-elimina tion operations effected in France be subject to French VAT but so subject must also be the service provided by the main contractor to its clients, provided the contractor invoices its clients for the entire cost of performing the service required by the contract of which the essential element is represented by the price paid by it to a site operator in France who physically carried out work for it there. The fact that the main contractor performs none of the waste elimination operations is immaterial once they are assigned to the subcontractor. The effect of this instruction is to deny the right of refund to main contractors in another Member State.

5The factual background to this case centres on the French authorities' refusal to reimburse French VAT to a certain number of German taxable persons. These German undertakings entered into contracts for the collection, sorting, stocking and elimination of waste with local authorities, industrial undertakings and public as well as private undertakings. They subcontracted part of this work to undertakings specialising in the elimination of waste. Since the latter were established in France, they charged French VAT on their services. The German undertakings invoiced their clients with German VAT on the totality of the price. Not being able to make deductions in Germany in respect of French VAT, they sought its reimbursement from the French authorities and this was refused.

6The main contractors in question complained to the Commission about the refusal of reimbursement. The Commission, by letter of 23 October 1992, informed France of the complaint and sought an explanation of the basis for the relevant refusals. The French authorities, at a meeting on 17 November 1992 and in a note to the Commission of 7 January 1993, contended that the tax-allocation rule of e Article 259-A-4 of the CGI and Article 9(2)(c) of the Sixth Directive applied. In their view, the essential feature of a waste-treatment contract of the type at issue, irrespective of whether part of the work involved is subcontracted, comprises the elimination or treatment of the waste in question. The mere fact that such work is executed in France by taxable persons established there is irrelevant, because the entire contract should be treated as a single whole and the work carried out in France be deemed to have been carried out thereby the main contractors. The latter were, thus, properly subject to VAT in France and were not entitled to claim its refund pursuant to the Eighth Directive.

II — The pre-litigation procedure

7The Commission, on 8 June 1993, sent France a letter of formal notice, rejecting the French authorities' argument and stating that the main waste-treatment contract must be treated as autonomous from the subcontract.

8France, by a letter of 6 August 1993, maintained its position. The contractors in question might, however, register for VAT in France and thus claim a right of deduction, in accordance with Article 17 of the Sixth Directive, in respect of the French VAT included in the invoices received from their subcontractors.

9The Commission, on 10 April 1996, adopted a reasoned opinion which particularly contested the French authorities' view that the main and subcontracts could be assimilated for the purpose of deeming the main contractor responsible for the treatment works carried out by the subcontractors in France.

10France did not comply with the reasoned opinion, but, on 12 June 1996, sent the Commission a further memorandum, in which it insisted, in particular, on the need to adopt a global interpretation of waste-treatment contracts, especially since the local authorities and other clients who award such contracts pay one price for what they would regard as the single service of having their waste treated.

11On 16 September 1997, the Commission brought the present action pursuant to Article 169 of the EC Treaty (now Article 226 EC), in which it claims that the Court should:

(a) Declare that, by refusing to refund VAT to taxable persons not established in France, in cases where those persons had subcontracted part of their work to a taxable person established in France, the French Republic has failed to fulfil its obligations under the Eighth Directive, especially Article 2 thereof;

(b) Order the French Republic to pay the costs.

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III — Analysis

A — Admissibility

(i) The plea of partial inadmissibility

12France claims that the action is partly inadmissible to the extent that it seeks a general declaration going beyond the case of waste-treatment contracts and applying to all services provided by French-based subcontractors in respect of work on movable tangible property. It contends that the Commission has not specified, either in its application to the Court or during the pre-litigation procedure, the factual or legal basis upon which such a general declaration is sought.

13The Commission, in its reply, claims that the question of the proper VAT treatment of waste-treatment contracts cannot be separated from the general question of the proper interpretation of the fourth indent of Article 9(2)(c) of the Sixth Directive. This is evidenced by the fact that France's defence turns on the interpretation of that provision, which, France accepts, would not necessarily be limited to such contracts. The Commission recalls the criticism expressed by the Court of the narrowness of its application in an earlier Commission v France case, which raised a comparable question of general principle, but in which the Commission had sought a declaration in its application to the Court that was limited to one sector. 5 Furthermore, it submits that the rights of defence of France were not affected, since the scope of its complaint remained constant throughout the pre-litigation procedure and in its application to the Court.

14In its rejoinder, France contends that the fact that the Court limited its declaration in the Shareholders' tax credit case to the particular sector cited in the Commission's application demonstrates that the Commission may not seek a general declaration from the Court pursuant to Article 169 of the Treaty unless it has formulated a correspondingly broad complaint during the pre-litigation procedure. At the hearing, the Commission's agent stated that the French interpretation of the fourth indent of Article 9(2)(c) is capable of being applied more broadly than just to the field of waste-treatment contracts.

(ii) Opinion on alleged partial inadmissibility

15The Court has consistently held that 'the purpose of the pre-litigation procedure is to give the Member State concerned an opportunity, on the one hand, to comply with its obligations under Community law and, on the other, to avail itself of its right to defend itself against the complaints made by the Commission', that '[t]he subject-matter of an action brought under Article 169 of the Treaty is therefore delimited by the pre-litigation procedure provided for by that article' and that, consequently, it 'cannot be founded on any complaints other than those formulated in the reasoned opinion'. 6 In essence, 'the safeguarding of the rights of the defence depends solely on the complaints contained in the application being identical to those in the reasoned Opinion ...'. 7 In my opinion, the application in the present case satisfies those criteria and France may not reasonably claim that it was unaware of the general nature of the complaint made by the Commission in this case.

16The complaint relating to the interpretation of Article 9(2)(c) of the Sixth Directive applies particularly, but not exclusively, to the treatment of complex waste-treatment contracts. The reasoned opinion raises in a general form the correct interpretation of Article 9(2)(c). Its formal conclusion is worded in identical general terms to that of the formal declaration which the Commission now seeks from the Court. Accordingly, the present infringement action cannot be declared inadmissible because of any lack of correspondence between the application to the Court and that outlined by the Commission during the pre-litigation procedure.

17It does not follow, however, that the claim, though admissible, is well founded in its broad form.

18It is useful to consider the reason for the regret expressed by the Court in the Shareholders' tax credit case regarding the Commission's decision to limit its complaint to the application of the impugned tax rule in the insurance sector because, notwithstanding that the rule was unequivocally of general application, it had received complaints 'only in regard to that sector'. The Court observed that it was to be 'regretted that, by reason of the fact that it is restricted to insurance companies, this action raises the problems in terms which cover only part of the scope of the French legislative provisions in question'. This case, however, is different. It is not Arti e cle 259-A-4 of the CGI but its application by a circular that is claimed to be incompatible with the Community law. The wider complaint made in the application to the Court may well be justified but, in my opinion, whether this is so is inextricably linked with the interpretation of Article 9 of the Sixth Directive and should be assessed by the Court when considering the substance of the case.

B — Substance

19Cross-border transactions give rise inevitably, as acknowledged by the seventh recital in the preamble to the Sixth Directive, to 'conflicts concerning jurisdiction as between Member States'. This danger arises in particular where a service provider established in one Member State provides services in another.

20Article 9 of the Sixth Directive contains a number of rather general rules designed, as the Court said in Dudda, 'to avoid, first, conflicts of jurisdiction, which may result from double taxation, and, secondly, non-taxation, as Article 9(3) indicates, albeit only as regards specific situations'. It allocates tax liability by means of two types of rule. Article 9(1) comprises a 'general rule' in so far as 'the place where the supplier has established his business is a primary point of reference ...'. Article 9(2) displaces that rule in a number of specific cases. However, the Court has also said that: 'when Article 9 is interpreted, Article 9(1) in no way takes precedence over Article 9(2). In every situation, the question which arises is whether it is covered by one of the instances mentioned in Article 9(2); if not, it falls within the scope of Article 9(1)'.

21The task in each case is to see if the case falls within one of the 'specific instances of places where certain services are deemed to be supplied, whereas Article 9(1) of the Sixth Directive lays down the general rule in the matter'. Even if the latter does not take precedence, the Court considers the former as having in some sense the character of derogations. It is sufficient to say that, as not all services are covered by Article 9(2), the application of one of the specific cases should be clearly demonstrated, otherwise the general place-of-establishment rule of Article 9(1) applies.

22The Commission and France have disagreed sharply about the contents and character, for the purposes of Article 9 of the Sixth Directive, of the waste-treatment contracts at issue. The former considers that they involve the performance of a complex series of operations only some of which involve 'work on movable tangible property' for the purpose of the fourth indent of Article 9(2)(c). France does not dispute that the contracts are complex. It claims, however, that they derive their essential character from the act of elimination and recycling of waste which is the purpose of all other elements and that these characteristic parts of the work are performed in France. The contracts for waste treatment should be treated as a single operation and not be broken down into their separate components of elimination. The characteristic operations constitute 'work on movable tangible property'. They are both performed in France and give the contract its essential character. Hence Article 9(2)(c) applies to the entire of the work provided for under the main contract.

23This claim to apply one of the specific instances listed in Article 9(2) of the Sixth Directive requires, in accordance with Dudda, that consideration be given, in the first instance, to the French argument.

24It is important not to lose sight of two simple points of reference. It is common case that the services provided by the French subcontractors fall to be taxed in France, the dispute relating solely to the claim for reimbursement made by the main contractors pursuant to the Eighth Directive. Furthermore, it is the characterisation of the main contract as a whole that is at issue. According to France the services provided under that contract, as a whole, must be considered as 'work on movable tangible property' which must be deemed to be performed in France by the main contractor just as surely as if it had performed that work directly there itself. The subcontracting of the work changes nothing since a global approach must be adopted.

25Before considering the issue in the light of the scheme, purpose and working of Article 9 of the Sixth Directive, I must dispose of two particular legal arguments advanced by France.

26Firstly, France supports its case for a global approach with the definition of 'waste management' given in the waste directives: 'the collection, transport, recovery and disposal of waste, including the supervision of such operations and after care of disposal sites'. 6 These operations correspond, no doubt, in whole or in part to the services provided under the main contracts, but they do not, in my view, assist in the resolution of the application of Article 9(2)(c) of the Sixth Directive where some elements are and some are not 'work on movable tangible property'. Nor does the definition concern itself at all with the latter notion. The Court has occasionally referred to a definition in one provision of Community law to shed light on its meaning in another. This is not such a case. The definition of waste treatment cannot cast light on the meaning of 'work on movable tangible property'. Collection and transport do not appear to be such work, though included in the definition. Sorting and stocking are not in the definition, though they form part of the subject-matter of the main contracts. Indeed, the definition tends, if anything, to confirm the variety of operations covered by the definition. I will return later to this question in paragraph 32.

27Secondly, France relies on two infringement actions about 'advertising services' for the purposes of the second indent of Article 9(2)(e) of the Sixth Directive. In these cases, the Court held France and Luxembourg to be in breach of their obligations under the Sixth Directive because of the exclusion (in the first case, by means of an administrative circular, in the second case by practice) of certain types of promotional services (which included certain supplies of goods) from the definition of 'advertising services' for that purpose. The judgments do not, however, touch in any way on the issue to be resolved in this case, namely how to classify, by reference to Article 9(1) or 9(2), a contract for the supply of services containing some elements within and some without one of the specific headings of Article 9(2).

28Neither the definition of 'waste management' nor the decisions in the Advertising services cases are of assistance in determining that central issue.

29The essence of the French position is that the main contract has to be treated as indivisible and as classified by reference to its claimed essential character. Thus, although a substantial number of the operations which that contract encompasses do not relate to 'work on movable tangible property', and are not physically performed in France, the entire of the services which are to be provided there under should be deemed to be provided in France.

30Consequently, in France's view, as explained at the hearing, the German main contractor should make a declaration and nominate a fiscal representative in France, as envisaged by Article 21 of the Sixth Directive. No issue of reimbursement pursuant to the Eighth Directive would then arise. The VAT paid on supplies of services by the French subcontractors would simply be deducted in accordance with the normal operation of Article 17 of the Sixth Directive.

31At first sight, it seems strange that a taxable person established in Germany would have to charge French VAT to its German clients for services supplied to them in Germany. The general rule of Article 9(1) of the Sixth Directive would be entirely displaced. As the Commission has said, this would expose the German final clients of such a taxable person to uncertainty about the rate of VAT to be paid, since the non-applicability of Article 9(1) would depend on whether the contract as a whole may be characterised by reference to those of its component elements that constitute 'work on movable tangible property'.

32The Court had occasion to consider the applicability of the fourth indent of Article 9(2)(c) of the Sixth Directive in Linthorst. There the Court ruled that veterinary surgeons' care for animals did not constitute 'work on movable tangible property'. That phrase, in its view, 'calls to mind, in common parlance, purely physical action on movable tangible property which is, by nature, neither scientific nor intellectual'. Emphasising that 'the principal duties of a veterinary surgeon basically consist ... in the provision of therapeutic treatment administered to animals in accordance with scientific rules', the Court held that the occasional 'physical action on the animal' which might be necessary was 'not sufficient for it to be described as "work"'. While France cites this decision as authority for its proposition that the collection, grouping, stocking, sorting, storage, treatment, incineration and most recycling operations constitute work on 'movable tangible property', I believe the decision demonstrates, on the contrary, the very limited scope of the latter term. 'Purely physical action' would not include, in my view, any of the items listed by France, with the possible exception of incineration and recycling. Waste-treatment work is not, as the Commission aptly points out, the subject of any specific Article 9(2) heading. Linthorst, moreover, gives no support for a global approach to the allocation of contracts between Article 9(1) and (2). In the result, some only of the operations involved in waste treatment come within the scope of Article 9(2)(c). Presumably they are part of the work performed by the subcontractors involved in the contracts underlying the present case. These operations are taxed in France, but not necessarily because of the operation of Article 9(2)(c), since no conflict has arisen between the application of Article 9(1) and (2) in that respect.

33The contention of France involves, in any event, for the reasons given at paragraph 31 above, an artificial interpretation of the main contract. By deeming the main contractor to provide services which it subcontracts to others to be performed independently, that interpretation deems it to be supplying services to itself. Self-supply may, of course, arise by express provision, in particular via Article 6(2) of the Sixth Directive. However, where there are, in fact, two taxable persons involved, there is no basis for it. It ignores that autonomy of the supplies of services in the distribution chain which is central to the VAT system.

34Moreover, the Commission points out that the logical outcome of the system proposed by France is that French VAT would be paid on the entire value of the main contract, though only part of the work involved is done in France. Although France claimed at the hearing that only the part of the work that is actually done in France would, at least systematically, be taxed there, it has not explained how this would be achieved in a way consistent with the supposition, underlying its approach, of a 'global' interpretation of the main contract based on its essential characteristic. I believe that the Commission's fears of the dangers of double taxation are thus well founded. The main contractor provides a comprehensive waste-treatment service to its German clients and, being established in that Member State, is ordinarily bound to pay VAT there. France's reliance on Genius Holdings for the proposition that 'Member States [should] provide ... for the possibility of correcting any tax improperly invoiced where the person who issued the invoice acted in good faith' is misplaced. That dictum concerns only the special circumstance there described, namely the effects of incorrect invoices. It is not a substitute for the correct application of Article 9 of the Sixth Directive.

35In my view Article 9, when combined with the Eighth Directive, provides a coherent scheme for resolution of conflicts of jurisdiction. Where one of the particular cases listed in Article 9(2), but not otherwise, applies, the service is effectively allocated to the Member State where the service is supplied. The Eighth Directive permits recovery of tax paid by a taxable person in another Member State to that service supplier. This is intended to replace the deduction system which operates within a single Member State. The adoption of a different approach where two Member States are concerned would complicate rather than simplify the system. The principal service provider (the main contractor in this case) would, as the Commission has said, be required to establish an artificial or fictitious establishment in a second Member State.

36In the result, I believe that France is clearly incorrect in refusing to make refunds in accordance with the Eighth Directive. Its refusal is based on a mistaken interpretation of the fourth indent of Article 9(2)(c).

37On the other hand, it has not been established by the Commission that France has misapplied the rules in question other than in respect of waste-treatment contracts. Indeed, the circular at issue is, on its face, limited to waste-treatment contracts. Although a wider application of the same principle would also constitute a failure by France to respect its obligations under the Eighth Directive, the Commission has not proved any wider application. I propose, therefore, that the Court grant the declaration sought by the Commission but limited to the manner in which France treats the contracts in question.

I - 6 49

IV — Conclusion

38.1 am of the opinion that the Court should:

(1) Declare that, by refusing to refund VAT to taxable persons not established in France, in cases where those persons have subcontracted to a taxable person established in France part of the work involved in a complex waste-treatment contract, the French Republic has failed to fulfil its obligations under the Eighth Directive, especially Article 2 thereof;

(2) Order the French Republic to pay the costs of the present action.

Notes

(1) Original language: English.

(2) Eighth Council Directive 79/1072/EEC of 6 December 1979 on the harmonisation of the laws of the Member States relating to turnover taxes — Arrangements for the refund of value added tax to taxable persons not established in the territory of the country, OJ 1979 L 331, p. 11 ('the Eighth Directive').

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

(4) France relies, inter alia, on Case 52/90 Commission v Denmark [1992] ECR I-2187, paragraph 17.

(5) Case 270/83 Commission v France [1986] ECR 273 ('Shareholders' tax credit').

(6) See, for example, Case C-96/95 Commission v Germany [19971 ECR I-1653, paragraph 22, Case C-206/96 Commission v Luxembourg [1998] ECR I-3401, paragraph 13 and Case C-328/96 Commission v Austria [1999] ECR I-7479, paragraph 34.

(7) See Commission v Austria, ibid., paragraph 40.

(8) The situation in this case may thus be contrasted with that in Case C-237/90 Commission v Germany [1992] ECR I-5973, where the Commission's attempt to broaden a complaint that a directive had not been transposed into one concerning an alleged failure to ensure compliance with it in practice was rejected as inadmissible by the Court; paragraphs 18 to 22.

(9) Op. cit., footnote 5 above, paragraph 7.

(10) Ibid., paragraph 9.

(11) Case C-327/94 Dudda v Finanzamt Bergisch Gladbach [1996] ECR I-4595, paragraph 20 (hereinafter 'Dudda').

(12) Case C-190/95 ARO Lease v Inspecteur der Belastingdienst [1997] ECR I-4383, paragraph 15 (hereinafter 'ARO Lease').

(13) Dudda, paragraph 21.

(14) Dudda, paragraph 20.

(15) See its most recent statement in ARO Lease, paragraphs 13 and 16.

(16) Article 1(d) of Council Directive 75/442/EEC of 15 July

(197) 5 on waste (OJ 1975 L 194. p. 39), as amended by Council Directive 91/156/EEC of 18 March 1991 amending Directive 75/442/EEC on waste (OJ 1991 L 78, p. 32).

(17) Case C-349/96 Card Protection Plan v Commissions of Customs and Excise [1999] ECR I-973 regarding 'insurance transactions' in Article 13(B)(a) of the Sixth Directive, interpreted in the light of directives concerning insurance.

(18) Case C-68/92 Commission v France [19931 ECR I-5881 and Case C-69/92 Commission v Luxembourg [1993] ' ECR I-5907 (the 'Advertising services cases).

(19) Case C-167/95 Linthorst, Pouwels and Scberes v Inspecteur der Belastingdienst [1997] ECR I-1195 (hereinafter ' 'Linthorst).

(20) Linthorst, paragraph 16.

(21) Linthorst, paragraph 17. By rejecting 'such a broad interpretation of the term "work" [as] would make the third indent of Article 9(2)(c) redundant...', the Court would appear to have endorsed my view (see paragraph 16 of my Opinion in Linthorst) that the notion of 'work on movable tangible property' should not be broadly interpreted.

(22) Case C-342/87 Genius Holdings v Staatssecretaris van Financien [1989] ECR 4227, paragraph 18.