C-47/84 Staatssecretaris van Financiën v Schul

JUDGMENT OF THE COURT (Fourth Chamber)

21 May 1985 *

In Case 47/84

REFERENCE to the Court under Article 177 of the EEC Treaty by the Hoge Raad der Nederlanden [Supreme Court of the Netherlands] for a preliminary ruling in the action pending before that court between

Staatssecretaris van Financiën [Secretary of State for Finance], The Hague,

and

Gaston Schul Douane-Expediteur BV, Wernhout, the Netherlands,

on the interpretation of Article 95 of the Treaty,

THE COURT (Fourth Chamber)

composed of: G. Bosco, President of Chamber, P. Pescatore, T. Koopmans, K. Bahlmann and T. F. O'Higgins, Judges,

Advocate General: M. Darmon Registrar: H. A. Rühl, Principal Administrator

after hearing the Opinion of the Advocate General delivered at the sitting on 5 March 1985,

gives the following

* Language of the Case: Dutch.

JUDGMENT

(The account of the facts and issues which is contained in the complete text of the judgment is not reproduced)

Decision

Grounds

1By a judgment dated 15 February 1984, which was received at the Court on 28 February 1984, the Hoge Raad der Nederlanden [Supreme Court of the Netherlands] referred to the Court for a preliminary ruling under Article 177 of the EEC Treaty two questions on the interpretation of Article 95 of the Treaty and the Sixth Council Directive, No 77/388/EEC of 17 May 1977, on the harmonization of the laws of the Member States relating to turnover taxes — Common system of value-added tax: uniform basis of assessment (Official Journal 1977, L 145, p. 1).

2An appeal in cassation has been brought before the Hoge Raad by the Staatssecretaris van Financiën [Secretary of State for Finance] against the judgment given by the Gerechtshof [Regional Court of Appeal], 's-Hertogenbosch, on 18 February 1983 following the preliminary ruling of this Court of 5 May 1982 in Case 15/81 (Schulv Inspecteur der Invoerrechten en Accijnzen [1982] ECR 1409).

3The dispute which gave rise to that ruling concerned the VAT to be charged on the importation into the Netherlands of a second-hand pleasure and sports boat, on the instructions and on behalf of a private person residing in the Netherlands who had bought it in France from another private person. In accordance with national legislation, the Netherlands tax authorities had charged VAT on that importation at the rate of 18% on the sale price, which was the normal rate applied within the country on the sale of goods for valuable consideration.

4In its ruling the Court, after setting out the characteristics of the common system of VAT, analysed whether Article 95 of the Treaty permitted the imposition of VAT on the importation from another Member State of goods supplied by one private person to another, in view of the fact that goods imported by private persons are already burdened with VAT charged in the Member State of exportation, there being no remission of tax on exportation. As a result of its analysis the Court concluded that Article 2, point 2, of the Sixth Directive, which provides that 'the importation of goods' is to be subject to VAT, must be interpreted in a manner consistent with the requirements of the Treaty, in particular those arising from Article 95 thereof.

5The Court ruled that 'the VAT which a Member State levies on the importation of products from another Member State supplied by a private person, where no such tax is levied on the supply of similar products by a private person within the territory of the Member State of importation, constitutes internal taxation in excess of that imposed on similar domestic products within the meaning of Article 95 of the Treaty to the extent to which the residual part of the VAT paid in the Member State of exportation which is still contained in the value of the product on importation is not taken into account.'

6On that point the Court explained that, in so far as an imported product supplied by a private person could not lawfully benefit from a remission of tax on exportation and hence remained burdened upon importation with part of the VAT paid in the Member State of exportation, the amount of VAT payable on importation should be reduced by the residual part of the VAT of the Member State of exportation which was still contained in the value of the product when it was imported. It added that that reduction could not, however, be greater than the amount of VAT actually paid in the Member State of exportation.

7The Gerechtshof, 's-Hertogenbosch, considering the case once again, established that the boat in question, which was built in Monaco, had been imported into France and that the French tax authorities had at that time charged VAT in respect of its importation. The boat was declared to the French authorities as having a value of FF 269 571, and the French VAT, payable at the rate of 17.6%, amounted to FF 47 444.49. A year later the boat was sold to a Netherlands national residing in the Netherlands for FF 365 000, an amount which exceeded the price of the boat, including tax, at the time of its importation into France. The rate of VAT applicable in the Netherlands was 18% at the time when the boat was imported into that State.

8Under those circumstances the Gerechtshof considered that the VAT paid in France was still wholly contained in the value of the boat at the time of its importation into the Netherlands, since it was sold to a purchaser in the Netherlands for 9 price higher than the value declared to the French tax authorities. The Gerechtshof took the view that, according to the ruling of the Court of 5 May 1982, the sum of the French VAT and the VAT payable on importation should not exceed the VAT charged in the Netherlands on a similar boat of equal value, net of tax, supplied to an individual on Netherlands territory. For that purpose the value on importation should be calculated by deducting the French VAT actually paid from the price on importation into the Netherlands; on that basis Netherlands VAT of 18% should be calculated, and the French VAT paid should be deducted from the resulting amount.

9Before the Hoge Raad, the Staatssecretaris van Financiën claimed that Article 95 of the Treaty, as interpreted by the Court in its ruling of 5 May 1982, required the tax authorities to deduct from the VAT payable on importation the residual VAT charged in the exporting State with which the goods were still burdened. However, it required no such reduction of the taxable amount, which, as was clear both from the Netherlands legislation and from the Sixth Directive (Article 11 B paragraph 1 (a)), had to be the price paid on importation. For that reason the method of calculation applied by the Gerechtshof was incorrect.

10The Hoge Raad decided that the solution to the problem raised depended upon the interpretation of Community law and that questions should be referred to the Court for a preliminary ruling. Those questions are worded as follows :

'1. Where a Member State charges VAT on the importation, from another Member State, of a product which is supplied by a non-taxable (private) person, but does not charge VAT on the supply of similar products by a private person within its own territory, should that Member State, in order to prevent the tax from constituting internal taxation in excess of that imposed on similar domestic products as referred to in Article 95 of the Treaty, take account of the amount of the VAT paid in the Member State of exportation that is still contained in the value of the product at the time of importation:

STAATSSECRETARIS VAN FINANCIEN vSCHUL

(a) in such a way that that amount is not included in the taxable amount for the purposes of VAT payable on importation and is in addition deducted from the VAT payable on importation,

or else

(b) in such a way that that amount is deducted only from the VAT payable on importation?

2. In the case defined in the first question, how should the amount referred to therein be calculated?'

11In its first question the Hoge Raad asks essentially whether the residual part of the tax with which the imported goods are still burdened in the event of a sale by one private person to another must be taken into account solely in the calculation of the VAT payable on importation or also in determining the taxable amount. The second question is designed to ascertain how that residual part should be calculated.

General considerations

12The Commission observes that the approach adopted by the Court in its ruling of 5 May 1982 is likely to give rise to difficulties in the practical application of the rules concerning VAT payable on the importation of goods supplied by one private person to another. The Commission, in close collaboration with the tax administrations of the Member States, has endeavoured to find legislative solutions for certain practical problems. On the basis of its studies, it drew up a proposal for a new directive and submitted it to the Council on 23 July 1984 (Proposal for a Sixteenth Council Directive on the harmonization of the laws of the Member States relating to turnover taxes — Common system of value-added tax: common scheme for certain goods on which value-added tax has been finally paid and which are imported by a final consumer in one Member State from another Member State (Official Journal 1984, C 226, p. 2)).

13The Commission states that the practical problems to be solved are in particular the following: by what method should account be taken of the VAT paid in another Member State without depriving the Member State of importation of tax revenue; how should the residual amount of tax contained in the purchase price be calculated; how can the authorities in the Member State of importation ascertain the rates of VAT applicable at the time of the initial purchase in the country of exportation; how should the amount of the residual tax contained in the sale price be calculated where different transactions have taken place in three or four different Member States; what form of proof should be required; what rule should be applied where the price of the second-hand goods is higher than the price of the goods new; and, lastly, should an exemption be provided for?

1 4 On the basis of the studies and consultations which it has undertaken, the Commission has reached the conclusion that the only solution consistent with the spirit of the ruling of 5 May 1982 would be to require the Member State from which the goods were exported to refund to the exporter the residual part of the tax with which the goods were still burdened, so as to permit the VAT chargeable on importation to be calculated on the basis of the same amount as the refund. On the other hand, a different solution should be envisaged for the case in which the goods concerned have increased in value : the Commission considers that in such a case no VAT should be refunded on exportation but on importation VAT should be charged solely on the difference between the price of the second-hand goods and the goods new. However, all those solutions can only be achieved by legislative means, that is to say by the amendment of the national laws concerning VAT payable on imports on the basis of a new Council Directive.

15In that regard the Court would point out that the practical application of the common system of VAT introduced by the Sixth Directive has given rise in certain instances to double taxation in intra-Community trade, as is illustrated by the present case. Indeed, in the case of the supply of goods by one private person to another private person residing in another Member State, if Articles 2 and 11 of the Sixth Directive were applied without taking account of the effect which the principles set forth in Article 95 of the Treaty have on the charging of VAT, tax would be charged at the full rate on the importation of such goods, in spite of the fact that they were still burdened with VAT paid in the exporting Member State.

16The Court has already stated in its ruling of 5 May 1982 that, although the establishment of a system of complete competitive neutrality involving full remission of tax on exportation is a matter for the Community legislature, until such a system has been established Article 95 of the Treaty prevents an importing Member State from applying its VAT rules to imported goods in a manner contrary to the principles embodied in that article.

v Consequently, pending the adoption of a legislative solution, in charging VAT on imports account must be taken of the effect of Article 95 of the Treaty. It is therefore for the Court to lay down guidelines compatible with Article 95 of the Treaty, consistent with the general scheme of the Sixth Directive and sufficiently simple to be able to be applied in a uniform manner throughout the Member States.

The taxable amount (first question)

18In its observations the Netherlands Government submits that on importation VAT is payable on the value of the goods at the time of importation, and that that value includes VAT and any other taxes previously paid. It adds that the same rules are applied to domestic transactions, since transactions between private persons and taxable persons relating to second-hand goods are subject to VAT calculated on the basis of the purchase price including all taxes.

19According to the French Government, it follows from the general rules on the application of VAT that the taxable amount can only be a value net of tax. The only question remaining is thus whether the VAT previously paid in another Member State may be regarded by the tax authorities as a tax with which the goods are still burdened; that question, however, was answered in the affirmative in the ruling of 5 May 1982.

20Schul and the Commission take the view that the ruling was founded on a comparison of the position of goods imported by a private person with that of goods manufactured and marketed in the importing Member State and then purchased by a private person. Such a comparison leads to the conclusion that the taxable amount is the same in each case, namely the value net of tax.

21In the ruling in question the Court stated that the prohibition laid down in Article 95 would not be complied with if imported products could be subject to the VAT applicable to similar domestic products without account being taken of the VAT with which those products were still burdened at the time of their importation. It follows that that residual VAT does not form part of the taxable amount for the purposes of VAT payable on importation, since the taxable amount for similar domestic products ¡is also an amount net of tax.

22As the national court indicated in part (a) of the first question, it therefore follows that the amount of residual tax with which the product is burdened does not form part of the taxable amount for the purposes of the VAT payable on importation and is in addition deducted from the VAT payable on importation.

23The answer which must be given to the first question is therefore that where a Member State charges VAT on the importation, from another Member State, of goods supplied by a non-taxable person, but does not charge VAT on the supply by a private person of similar goods within its own territory, the VAT payable on importation must be calculated by taking into account the amount of VAT paid in the Member State of exportation which is still contained in the value of the product at the time of importation, in such a way that that amount is not included in the taxable amount and is in addition deducted from the VAT payable on importation.

The residual part of the VAT with which the product is burdened (second question)

24The second question concerns the calculation of the residual part of the VAT paid in the Member State of exportation which is still contained in the value of the goods at the time of their importation.

25In its ruling of 5 May 1982 the Court stated that the amount of that residual part could not be greater than the amount of VAT actually paid in the Member State of exportation. From that statement the Gerechtshof concluded that, where the goods increased in value between the time when they were last subject to VAT in the exporting State and the time when they were imported, the residual part of the VAT still contained in the value of the goods was equal to the amount of VAT actually paid in the exporting State.

26The Netherlands and French Governments consider that it is not possible to regard the entire amount of the VAT charged in the exporting State as still contained in the value of the goods, because they have since been used. In their view the residual part referred to in the ruling of 5 May 1982 is therefore solely that part of the VAT charged in the exporting State which does not correspond to the use of the product in that State.

27For that reason the two governments suggest that a rule should be applied whereby the tax charged in the exporting State is written off. To write off the tax on the basis of the useful life of the imported goods would be too uncertain to be acceptable, in view of the different practices in the various Member States and sectors concerned; therefore, an approach should be adopted similar to the system laid down in Article 20 (2) of the Sixth Directive for adjustment of deductions in the case of capital goods which have been sold after being used. Such a system would involve writing off the goods over five years and would thus mean that the residual part of the VAT contained in the value of the imported goods would correspond to the VAT actually charged in the Member State of exportation less one-fifth per calendar year or part of a calendar year which had elapsed since the date on which the VAT was charged.

28The Commission is opposed to that view. It argues that the method proposed amounts to a standard procedure for calculating the residual part of the tax, whereas the Sixth Directive is founded on the principle that the VAT payable on importation is based on the actual price on importation. Furthermore, the capital goods covered by Article 20 of the Sixth Directive are a special case which cannot be equated with second-hand goods imported by a private person.

29Schul considers that the amortization of the tax charged in the country of exportation will, in the majority of cases, be reflected by a reduction in the value of the goods. For that reason the residual part should in its view be calculated on the basis of the VAT rate applied in the Member State of exportation, provided that the resulting amount does not exceed the amount actually paid in that State. Where the value of the goods has increased, the residual amount will thus correspond to the amount actually paid, as the Gerechtshof has already held in its judgment of 18 February 1983.

30Eventually, at the hearing, the Commission adopted the same opinion.

31Having considered the various arguments, the Court shares that view. Any standard method, such as that suggested by the Netherlands and French Governments, would have the disadvantage of diverging too far from the rules of the Sixth Directive to be developed by judicial interpretation. Irrespective of its intrinsic merits, the method adopted by the Gerechtshof stays close to those rules, whilst being practicable and observing the provisions of Article 95 of the Treaty.

32The method is consistent with Article 95 of the Treaty and the provisions of the Sixth Directive, as interpreted in the Court's ruling of 5 May 1982. It can be applied by the tax authorities without giving rise to serious practical difficulties since, in cases in which the value of the goods has decreased, the residual part of the tax that is still contained in that value at the time of importation is calculated by reducing the amount of VAT actually paid in the Member State of exportation by a percentage representing the proportion by which the goods have depreciated, whereas in cases in which the value of the goods has increased, that residual part simply corresponds to the amount of tax actually charged.

33In that connection it should be remembered that, as the Court has already stated in its ruling of 5 May 1982, the burden of proving facts which justify the taking into account of the tax paid in the Member State of exportation that is still contained in the value of the goods on importation falls on the importer.

34It follows from the foregoing that the amount of VAT paid in the Member State of exportation that is still contained in the value of the goods at the time of their importation is equal:

— in cases in which the value of the goods has decreased between the date on which VAT was last charged in the Member State of exportation and the date of importation: to the amount of VAT actually paid in the Member State of exportation, less a percentage representing the proportion by which the goods have depreciated;

— in cases in which the value of the goods has increased over that same period : to the full amount of VAT actually paid in the Member State of exportation.

Costs

Costs

35The costs incurred by the Netherlands and French Governments and by the Commission of the European Communities, which have submitted observations to the Court, are not recoverable. Since these proceedings are, in so far as the parties to the main proceedings are concerned, a step in the action pending before the national court, the decision on costs is a matter for that court.

Operative part

On those grounds,

THE COURT (Fourth Chamber),

in answer to the questions referred to it by the Hoge Raad der Nederlanden by judgment of 15 February 1984, hereby rules:

(1) Where a Member State charges VAT on the importation, from another Member State, of goods supplied by a private person, but does not charge VAT on the supply by a private person of similar goods within its own territory, the VAT payable on importation must be calculated by taking into account the amount of VAT paid in the Member State of exportation that is still contained in the value of the goods at the time of importation in such a way that that amount is not included in the taxable amount and is in addition deducted from the VAT payable on importation.

(2) The amount of VAT paid in the Member State of exportation that is still contained in the value of the goods at the time of importation is equal:

in cases in which the value of the goods has decreased between the date on which VAT was last charged in the Member State of exportation and the date of importation: to the amount of VAT actually paid in the Member State of exportation, less a percentage representing the proportion by which the goods have depreciated;

in cases in which the value of the goods has increased over that same period: to the full amount of the VAT actually paid in the Member State of exportation.

Bosco Pescatore

Koopmans Bahlmann O'Higgins

Delivered in open court in Luxembourg on 21 May 1985.

P. Heim G. Bosco Registrar President of the Fourth Chamber

OPINION OF MR ADVOCATE GENERAL DARMON

delivered on 5 March 1985 ( *1 )

Mr President,

Members of the Court,

1The Hoge Raad der Nederlanden [Supreme Court of the Netherlands] has referred to the Court questions relating to a dispute with which the Court is familiar, since it has already given rise to the Court's ruling of 5 May 1982 in Case 15/81 (Schul v Inspecteur der Invoerrechten en Accijnzen [1982] ECR 1409, hereinafter referred to as ‘Schul I’). So that the precise scope of the questions referred to the Court by the Hoge Raad may be understood, I shall briefly outline the background to the dispute.

2The dispute arose out of the importation into the Netherlands by the limited liability company Gaston Schul Douane-Expediteur BV, customs forwarding agents, of a secondhand pleasure and sports boat on the instructions and on behalf of a private person residing in the Netherlands who had bought it in France from another private person (Schul I, paragraph 2). On that importation the Netherlands tax authorities charged on the resale price of HFL 172300 VAT at the rate of 18%, amounting to HFL 31014, the normal rate which is applied within the country on the sale of goods for valuable consideration. The problem raised by that assessment, which was the subject of the judgment in Schul I, is that VAT is not charged on a similar transaction effected between private persons in the Netherlands.

The Netherlands authorities relied on Article 1 of the Netherlands Law on Turnover Tax, adopted pursuant to Article 2 of the Sixth Council Directive (No 77/388 of 17 May 1977) on the harmonization of the laws of the Member States relating to turnover taxes — Common system of value-added tax: uniform basis of assessment (Official Journal 1977, L 145, p. 1). Article 2 of that directive provides that:

‘The following shall be subject to value-added tax:

...

2the importation of goods.’

The customs agents challenged the decison of the Netherlands authorities and brought an action before the Gerechtshof [Regional Court of Appeal], 's-Hertogenbosch. In reply to questions submitted for a preliminary ruling by the Gerechtshof, the Court of Justice ruled in particular as follows :

‘It is necessary also to take into account the VAT levied in the Member State of exportation for the purpose of determining the compatibility with the requirements of Article 95 of a charge to VAT on products from another Member State supplied by private persons where the supply of similar products within the territory of the Member State of importation is not so liable.’

From that the Court inferred that:

‘In so far as such an imported product supplied by a private person may not lawfully benefit from a remission of tax on exportation and so remains burdened upon importation with part of the VAT paid in the Member State of exportation, the amount of VAT payable on importation must be reduced by the residual part of the VAT of the Member State of exportation which is still contained in the value of the product when it is imported.’

The Court added that:

‘The amount of this reduction may not, however, be greater than the amount of VAT actually paid in the Member State of exportation.’

3It is clear from the judgment of the Hoge Raad der Nederlanden that following the judgment of the Court of Justice the parties no longer disputed that, in calculating the VAT payable on importation, account ought to have been taken of the fact that VAT of an amount equivalent to HFL 22298.91 had already been paid on the goods in France. None the less, certain points remained to be decided as regards the method by which the tax paid should be deducted.

In particular, the parties disagreed first as to whether or not the VAT already paid in respect of the goods in the Member State of exportation should be included in the taxable amount used in the calculation of the amount of VAT payable in the importing State, and secondly on the way in which the part of the VAT paid in the exporting State, which was to be regarded as still contained in the value of the goods when it was imported, was to be calculated.

The Gerechtshof, 's-Hertogenbosch, rejected the argument put to it by the Netherlands tax authorities and considered that:

The Netherlands VAT ought to be charged on the sale price of the goods, excluding VAT;

The whole of the VAT paid in France ought to be deducted, without subtracting from it the amount corresponding to its use during the year which elapsed between the original purchase and the resale.

The Staatssecretaris van Financiën [Secretary of State for Finance] lodged an appeal in cassation against that decision, claiming that:

the VAT on importation should be charged on the value of the goods at the time of importation, including the VAT paid in the Member State of exportation; and that

since the goods were used for a certain length of time, the amount to be deducted from the VAT originally paid in the Member State of exportation had to be reduced.

In order to resolve the two problems thus raised, the Hoge Raad der Nederlanden submitted to the Court for a preliminary ruling the following questions :

Where a Member State charges VAT on the importation from another Member State of a product which is supplied by a nontaxable (private) person, but does not charge VAT on the supply of similar products by a private person within its own territory, should that Member State, in order to prevent the tax from constituting internal taxation in excess of that imposed on similar domestic products as referred to in Article 95 of the Treaty, take account of the amount of the VAT paid in the Member State of exportation that is still contained in the value of the product at the time of importation :

in such a way that that amount is not included in the taxable amount for the purposes of VAT payable on importation and is in addition deducted from the VAT payable on importation,

or else

in such a way that that amount is deducted only from the VAT payable on importation?

2In the case defined in the first question, how should the amount referred to therein be calculated?’

I shall now consider and discuss the observations submitted on each of the preliminary questions in turn.

4First, as regards the calculation of the amount on which the VAT on importation should be charged, the arguments put before the Court may be summarized as follows :

The Netherlands Government argues that the VAT on importation should be based on the value of the goods at the time of importation, that is to say including all taxes, in accordance with the Netherlands Law on Turnover Tax of 1968 and Article 11 B (3) (a) of the Sixth Directive, which provides that:

‘The taxable amount shall include, in so far as they are not already included:

taxes, duties, levies and other charges due outside the country of importation and those due by reason of importation, excluding the value-added tax to be levied’.

The Netherlands Government further points out that on the domestic market transactions between private persons and taxable persons concerning used goods are subject to the same rules.

That line of argument cannot be accepted, for the following reasons:

The conclusion to be drawn from the Court's observations in Schul I is that the VAT paid in the Member State of exportation should not be included in the taxable amount. In that judgment the Court ruled that, in the circumstances of the case (where there was no remission of tax on exportation but VAT was charged on importation even though the same transaction was not subject to VAT within the country), the VAT already burdening the product at the time of importation had to be deducted from the amount of VAT on importation, failing which

‘the tax on importation would in fact be an additional charge burdening imported products more heavily than similar domestic products’ (paragraph 31, emphasis added).

That solution is based especially upon Article 95,

‘which prohibits not only the direct but also the indirect imposition of internal taxation on products from other Member States in excess of that on similar domestic products’ (paragraph 32, emphasis added).

The rule applied by the Court could be described as follows: a tax on a tax is not permissible. The inclusion in the taxable amount of the amount of VAT paid in the Member State of exportation would be inconsistent with that principle and would constitute an ‘additional charge’, indirectly burdening imported products more heavily than similar domestic products.

As regards the argument based on Article 11 B 3 (a) of the Sixth Directive, it should be pointed out that that directive, except for Article 2 (2), which provides that all imports are subject to payment of VAT (Schul I, paragraph 15), does not apply to transactions involving secondhand goods effected by nontaxable persons.

Consequently any argument based on the directive must be treated with caution where it is inconsistent with the principle laid down by Article 95 of the Treaty, as interpreted by the Court (Schul I, paragraph 38).

Moreover, as the Court pointed out in Scimi I (paragraph 10), the Sixth Directive established a system whereby VAT is chargeable on each transaction only after deduction of the amount of VAT borne directly on the various price components. In order for that system to be applied consistently, the taxable amount must be calculated on the same basis at each marketing stage. In that perspective Article 11 B 3 (a) cannot be interpreted as requiring that the VAT paid in the Member State of exportation should be included in the taxable amount on which the VAT on importation is charged. Any other view would be inconsistent with the essential principle of the neutrality of internal taxation, since imported products would be taxed more heavily than domestic products.

In short, as has been stressed by the plaintiff in the main action, the French Government and the Commission, the inclusion in the value of goods on importation of the VAT paid at the preceding stage would result in double taxation since the VAT on importation would be partly based on the VAT paid in the Member State of exportation.

The answer to the first question asked by the Hoge Raad der Nederlanden should therefore be that, in the circumstances of the case, the VAT on importation must be calculated, in accordance with the principle laid down by Article 95 as interpreted by the Court in its ruling of 5 May 1982, on the basis of the value of the product at the time of importation, after deducting from that value the residual part of the VAT paid in the Member State of exportation.

5The answer to the first question does not resolve the question of how the competent authorities are to determine the

‘residual part of the value-added tax of the Member State of exportation which is still contained in the value of the product when it is imported’ (Schul I, last phrase of the second sentence of paragraph 34, emphasis added).

It is essential to establish the residual tax in order to determine the taxable amount and, as the Court has held, to fix the balance of the VAT payable by the importer in the Member State of importation. More precisely, it is clear from the judgment of the Hoge Raad that the problem is to determine the method by which the residual amount may be calculated.

As the Court stated in its ruling in Schul I, it is necessary to ascertain ‘the proportion of value-added tax’ with which the product is still burdened on importation, that is to say ‘the part of the value-added tax paid in the Member State of exportation’ with which the product ‘remains burdened’ or ‘the residual part... which is still contained’ in the value of the product when it is imported (Schul I, paragraphs 32 and 34, emphasis added).

Clearly the amount of VAT originally paid in the Member State of exportation when the product was bought must be reexamined, or more precisely brought up to date, at the date of the resale for exportation, since the product has meanwhile been used. The only remaining problem is how the period of use is to be taken into account in calculating the amount of VAT payable.

VAT is a tax on consumption (Schul I, paragraph 10); therefore where consumption commenced in one Member State and continues in another Member State, the Member State of importation will normally charge VAT, in accordance with the rules laid down in the Sixth Directive, after remission of the VAT paid in the Member State of exportation; according to that principle, known as the principle of the country of destination, the VAT applicable is that of the country in which the goods are consumed (Schul I, paragraphs 13 to 15). In the case of transactions between nontaxable persons, it is therefore necessary to calculate the proportion of the VAT that is still contained in the value of the goods when they are imported. In other words, as the French Government pointed out, it is a question of establishing what part of the VAT paid in the Member State of exportation may be regarded as not having corresponded to the use of the product in that State. To take an example: if the value of goods at the time of importation is much lower than their original value, a deduction equal to the total VAT paid at the time of purchase could exceed the resale price of the goods in question. In such a case, it could not be claimed that the objectives of Article 95 or those of Articles 2 and 3 of the Treaty were being achieved (Schul I, paragraphs 26 and 33).

It is this type of problem which is faced by the Hoge Raad der Nederlanden, since in this case, in contradistinction to the example which I have just set out, the value of the goods at the time of importation is higher than their original value. The parties to the main action and the interveners have suggested various methods of solving that problem. Three types of solution have emerged, and I will examine them in turn.

6The first method (hereinafter referred to as the pro rata temporis method), supported by the Netherlands Inspecteur der Invoerrechten en Accijnzen [Inspector of Customs and Excise] and by the Netherlands and French Governments and discussed by the Commission, consists in calculating the residual VAT that is still contained in the value of the goods on importation by reference to the proportion which the length of time for which the goods were actually used bears to the total period of use. The latter figure — and here opinions vary — may be calculated either on the basis of the presumed life of the goods (which in this case the Netherlands inspector estimates at 30 years for a boat) or on the basis of a standard depreciation period, estimated at five years by the French and Netherlands Governments.

More precisely, as the boat in question was resold after one year, that method would give rise to a residual VAT equal to the VAT originally paid less one-thirtieth in the first case or one-fifth in the second case.

May I say at once that, in so far as this method is based on the presumed life of the imported goods, it scarcely seems practicable at Community level. As the French Government points out, it will always be a mere assessment, which may vary in the Member States, according to their customs. In order to avoid distortion of competition it is essential that the effect of the system applied within the Community should be as neutral as possible. Of the two pro rata temporis methods the standard method seems to me preferable at this stage; however I shall examine later whether it should be adopted.

7A second method is set out in the Commission's Proposal for a Sixteenth Directive, which is intended to lay down a common system of VAT applicable to transactions between individuals relating to the importation of secondhand goods (Official Journal 1984, C 226, p. 2).

In the second proposal the Commission distinguishes two different methods of calculating the residual VAT, according to whether the value of the goods in question has decreased or increased between the time when the goods were first used and their importation. I shall give a brief account of those methods.

If the goods have depreciated in value, the VAT originally paid in the Member State of importation will be reduced in proportion to the depreciation which has taken place. The Commission states that in practice that result arises from a simple rule of three: first the value of the goods on importation excluding VAT is obtained by multiplying the resale price inclusive of VAT by the constant ratio between the original sale price excluding VAT and the original sale price inclusive of VAT; the residual VAT is then the result of the difference between the gross resale value and the value thus obtained. It seems that the same result may be reached more directly by applying to the amount of VAT originally paid the percentage of depreciation established.

According to the Commission, that method is not applicable where the goods have increased in value, since it would give rise to VAT higher than the amount originally paid. In such a case the Commission therefore proposes to tax only the amount by which the goods have increased in value by comparison with the original salė price, the VAT paid on the original price being retained by the Member State of exportation.

8The third and final method is that advocated by the applicant in the main action and accepted by the Gerechtshof, 's-Hertogenbosch. Like the previous method, it is based on the change in the value of the goods in question.

If the goods decrease in value, the suggested method corresponds to that put forward by the Commission, which I have just described.

If the value of the goods increases, the applicant in the main action considers that the entire amount of VAT originally paid in the Member State of exportation should be deducted from the VAT payable on importation. In its view that solution follows from paragraph 34 of the Court's ruling in Schul I, the last sentence of which states that the amount of residual VAT to be deducted ‘may not, however, be greater than the amount of VAT actually paid in the Member State of exportation’. The application of the method proposed for cases in which the goods have decreased in value would, as I have already pointed out, result in the residual VAT being higher than the VAT originally paid.

9The description of the various possible solutions prompts me to make the following remark. The solution proposed by the Commission in the case of an increase in the value of the goods clearly could not be accepted, as it has itself conceded. As a temporary measure pending the adoption of Community legislation on the matter (cf. the Proposal for a Sixteenth Directive), the appropriate method must be sought along the lines laid down by the Court in its ruling in Schul I, which, in accordance with the principle laid down in Article 95 of the Treaty, provides for the deduction of the residual VAT.

I must, therefore examine the other two methods described above.

10There are two advantages to the standard method. First, it is not affected by changes in the value of the goods. Secondly, it may be based on an analogous application of Article 20 of the Sixth Directive on the ‘Adjustment of Deductions’, which provides as follows:

In the case of capital goods, adjustment shall be spread over five years including that in which the goods were acquired or manufactured. The annual adjustment shall be made only in respect of one-fifth of the tax imposed on the goods.’

In that connection, as the French and Netherlands Governments point out, if that solution were applied to the transactions covered by this case the rules on depreciation would be standardized regardless of whether the contracting parties were taxable or nontaxable persons.

However, I do not consider it possible to propose the adoption of that method.

As the Commission points out, VAT is in principle based on the actual price on importation, which, as the Community rules stand at present, seems to rule out any standard method of calculating the residual VAT which would affect the import price. In that connection it must be stressed that the Court refers in its ruling in Schul I to the part of the VAT with which the goods actually remain burdened upon importation (paragraph 34).

Moreover, it does not seem to me that a standard system fixing the depreciation period at five years for all goods and all Member States may be based on Article 95.

Lastly, that method has its disadvantages: thus where the goods in question have decreased in value, it may result in the residual VAT being higher than the value of the goods at the time of their importation. Furthermore, its adoption would make it necessary to establish a special system for secondhand goods with a life span of less than five years.

11Those considerations lead me ultimately to propose that the Court adopt the method applied by the Gerechtshof, 's-Hertogenbosch.

That method has the merit of being practicable:

If the value of the goods has decreased, the VAT paid in the Member State of exportation which is still contained in the value of the goods is calculated on importation by reference to the proportion by which the goods have depreciated, in accordance with the rules which I have already set out; it is therefore the actual residue of the original VAT that is taken into account, in accordance with the ruling of the Court in Schul I;

If the goods have increased in value, the amount of VAT to be deducted is that originally paid in the Member State of exportation; this second rule takes account of the express reservation contained in the last sentence of paragraph 34 of the ruling in Schuil.

It also has the advantage of meeting not only the need for a fair division of tax revenue among the Member States, since the State of origin retains the VAT originally paid and the importing State is entitled to tax the increase in the value of the goods, but also the need to avoid double taxation, in accordance with the principle set forth in Article 95 of the Treaty, since whatever the change in the value of the goods in question the amount of VAT to be deducted will be that with which the goods remain ‘burdened upon importation’ (Schul I, paragraph 34).

Conclusion

I therefore propose that the answer to the second question should be that the residual VAT still contained in the value of the goods on importation is represented:

Where the imported goods have decreased in value, by the amount of VAT originally paid less a percentage representing the proportion by which the goods have depreciated;

Where the goods have increased in value, by the full amount of VAT originally paid in the Member State of exportation.

12Accordingly I propose that the questions submitted to the Court by the Hoge Raad der Nederlanden should be answered as follows :

Where a Member State charges VAT on the importation from another Member State of goods supplied by a private person, but does not charge VAT on similar goods supplied by a private person within its own territory, the Member State of importation should, in accordance with the principles laid down by Article 95 of the Treaty, take account of the amount of VAT paid in the Member State of exportation that is still contained in the value of the goods at the time of importation, in such a way that that amount

is deducted from the amount on which VAT is charged on importation,

and is represented

in cases in which the value of the imported goods has decreased, by the amount of VAT originally paid less a percentage representing the proportion by which the goods have depreciated;

in cases in which the value of the goods has increased, by the full amount of VAT originally paid in the Member State of exportation.

( *1 ) Translated from the French.