C-475/03 Banca popolare di Cremona

Parties Grounds Operative part

In Case C-475/03,

REFERENCE for a preliminary ruling under Article 234 EC, from the Commissione tributaria provinciale di Cremona (Italy), made by decision of 9 October 2003, received at the Court on 17 November 2003, in the proceedings

Banca popolare di Cremona Soc. coop. arl

v

Agenzia Entrate Ufficio Cremona,

THE COURT (Grand Chamber),

composed of V. Skouris, President, P. Jann, C.W.A. Timmermans, A. Rosas, K. Schiemann, J. Makarczyk, Presidents of Chambers, N. Colneric (Rapporteur), J.N. Cunha Rodrigues, R. Silva de Lapuerta, K. Lenaerts, P. Kūris, E. Juhász and G. Arestis, Judges,

Advocate General: F.G. Jacobs, and subsequently C. Stix-Hackl,

Registrar: K. Sztranc, Administrator, and subsequently H. von Holstein, Deputy Registrar, and L. Hewlett, Principal Administrator,

having regard to the written procedure and further to the hearing on 16 November 2004,

after considering the observations submitted on behalf of:

– Banca popolare di Cremona Soc. coop. arl, by R. Tieghi, avvocato,

– the Italian Government, by I.M. Braguglia, acting as Agent, and G. De Bellis, avvocato dello Stato,

– the Commission of the European Communities, by E. Traversa and D. Triantafyllou, acting as Agents,

after hearing the Opinion of Advocate General Jacobs at the sitting on 17 March 2005,

having regard to the order of 21 October 2005 reopening the oral procedure and further to the hearing on 14 December 2005,

after considering the observations submitted on behalf of:

– Banca popolare di Cremona Soc. coop. arl, by R. Tieghi and R. Esposito, avvocati,

– the Italian Government, by I.M. Braguglia, acting as Agent, assisted by G. De Bellis, avvocato dello Stato,

– the Belgian Government, by M. Wimmer, acting as Agent,

– the Czech Goverment, by T. Boček, acting as Agent,

– the Danish Government, by J. Molde, acting as Agent,

– the German Government, by R. Stotz and U. Forsthoff, acting as Agents,

– the Spanish Government, by N. Díaz Abad, acting as Agent,

– the French Government, by G. de Bergues, acting as Agent,

– Ireland, by J. O’Reilly SC, and P. McCann, BL,

– the Hungarian Government, by A. Müller and R. Somssich, acting as Agents,

– the Netherlands Government, by M. de Grave, acting as Agent,

– the Austrian Government, by H. Dossi, acting as Agent,

– the Portuguese Government, by L. Inez Fernandesz, A. Seiça Neves and R. Lares, acting as Agents,

– the Finnish Government, by E. Bygglin, acting as Agent,

– the Swedish Government, by K. Norman and A. Kruse, acting as Agents,

– the United Kingdom Government, by E. O’Neill, acting as Agent, and by D. Anderson QC and T. Ward, Barrister,

– the Commission of the European Communities, by E. Traversa and D. Triantafyllou, acting as Agents,

after hearing the Opinion of Advocate General Stix-Hackl at the sitting on 14 March 2006,

gives the following

Judgment

Legal context and the dispute

1This reference for a preliminary ruling relates to the interpretation of Article 33 of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment (OJ 1977 L 145 p. 1), as amended by Council Directive 91/680/CEE of 16 December 1991 (OJ 1991 L 376, p. 1, ‘the Sixth Directive’).

2The reference was made in proceedings brought by Banca popolare di Cremona Soc. coop. arl (‘Banca popolare’) against Agenzia Entrate Ufficio Cremona concerning the levying of a regional tax on productive activities.

Legal context

Community legislation

3Under Article 33(1) of the Sixth Directive:

‘Without prejudice to other Community provisions, in particular those laid down in the Community provisions in force relating to the general arrangements for the holding, movement and monitoring of products subject to excise duty, this Directive shall not prevent a Member State from maintaining or introducing taxes on insurance contracts, taxes on betting and gambling, excise duties, stamp duties and, more generally, any taxes, duties or charges which cannot be characterised as turnover taxes, provided however that those taxes, duties or charges do not, in trade between Member States, give rise to formalities connected with the crossing of frontiers.’

4The original version of Directive 77/388 already contained an Article 33 which was essentially the same as that provision.

National legislation

5The regional tax on productive activities (imposta regionale sulle attività produttive, ‘IRAP’) was introduced by Legislative Decree No 446 of 15 December 1997 (ordinary supplement to the GURI No 298, of 23 December 1997, ‘the legislative decree’).

6Articles 1 to 4 of that decree read as follows:

‘Article 1. Introduction of the tax

1. A regional tax on productive activities within the territory of the regions shall be introduced.

2. The tax shall be charged on a real basis and shall not be deductible for the purposes of income tax.

Article 2. Condition for the application of the tax

1. The condition for the application of the tax shall be the regular exercise of an independently run activity whose object is the production of or trade in goods or the provision of services. Activity carried on by companies and organisations, including State bodies and administrations shall in all circumstances give rise to liability to the tax.

Article 3. Taxable persons

1. Traders who carry on one or more of the activities listed in Article 2 shall be liable to the tax. The following shall thus be liable to the tax:

(a) the companies and organisations listed in Article 87(1)(a) and (b) of the consolidated text of the law on income tax, adopted by Decree of the President of the Republic No 917 of 22 December 1986;

(b) collective partnerships and limited partnerships and their equivalents … and natural persons carrying on the commercial activities listed in Article 51 of the consolidated text;

(c) natural persons, simple partnerships and their equivalents … who carry on the trades and professions listed in Article 49(1) of the consolidated text;

(d) farmers in receipt of agricultural income …

…

2. The following shall not be liable to the tax:

(a) joint investment funds …

(b) pension funds …

(c) European economic interest groups (EEIG) …

Article 4. Basis of assessment

1. The tax shall apply to the net value of production deriving from activity carried on within the region.

…’

7Articles 5 to 12 of the legislative decree lay down criteria for the determination of that ‘net value of production’ which vary according to the different economic activities which constitutes the chargeable event for IRAP.

8Article 5 of the decree provides that, for the traders referred to in Article 3(1)(a) and (b) of that decree who do not carry on activities as banks, other financial organisations or companies or insurance undertakings, the basis of assessment is the difference between the total of the items which fall within the heading of value of production within the meaning of Article 2425(1)(A) of the Italian Civil Code and the total of those which fall within the heading of production costs within the meaning of Article 2425(1)(B) of the code, excluding certain items such as staff salary costs.

9Article 2425 of the Civil Code, headed ‘Contents of the profit and loss account’ provides:

‘The profit and loss account must be drawn up in accordance with the following scheme:

(A) Value of production:

(1) Revenues from sales and services;

(2) Variation in stocks of work in progress, semi-finished goods and finished goods;

(3) Change in contract work in progress;

(4) Increase in company-produced additions to fixed assets;

(5) Other revenues and income, with separate indication of contributions in the accounts for the period.

Total.

(B) Production costs:

(6) Raw, ancillary and consumable materials and goods for resale;

(7) Outside services ;

(8) Use of property not owned;

(9) Personnel costs

(a) Wages and salaries;

(b) Social security contributions;

(c) Termination benefits;

(d) Retirement and equivalent pensions;

(e) Other costs;

(10) Amortisation and depreciation:

(a) Amortisation of intangible fixed assets;

(b) Depreciation of tangible fixed assets;

(c) Write-downs of fixed assets;

(d) Write-downs of loans included in current assets and of cash balances;

(11) Variation in stocks of raw, ancillary and consumable materials and goods for resale;

(12) Provisions for risks;

(13) Other reserves;

(14) Miscellaneous operating costs.

Total.

Difference between production value and costs (A-B).

…’

10Under Article 14 of the legislative decree ‘the tax shall be payable in respect of taxation periods, separate tax liability arising in respect of each period. The taxation period shall be determined in accordance with the criteria laid down for the purposes of income tax’.

11According to Article 16 of the legislative decree, as a general rule, ‘the tax shall be calculated by applying a rate of 4.5% to the net value of production’. That rate varies according to the region where the undertaking is established.

The main proceedings and the question referred for a preliminary ruling

12Banca popolare brought an action before the referring court against the decision of Agenzia Entrate Ufficio Cremona refusing to reimburse the IRAP paid in 1998 and 1999.

13According to the applicant in the main proceedings, the legislative decree is not consistent with Article 33 of the Sixth Directive.

14The referring court makes the following points :

– first, IRAP applies, in general, to all commercial transactions involving production or trade, relating to goods and services and arising from the regular exercise of an activity intended for that purpose, that is, through undertakings, trades and professions;

– second, although IRAP operates according to a different procedure from that for value added tax (‘VAT’), it is levied on the net value deriving from production, or, more specifically, the net value ‘added’ to the product by the producer, with the result that IRAP is a value added tax;

– third, IRAP is levied at every stage of the production or distribution process;

– fourth, the total amount of IRAP collected in the various stages of the cycle, from production up to the final consumer, is equal to the rate of IRAP applied to the selling price of goods and services charged to the final consumer.

15However, the referring court raises the question whether the differences between VAT and IRAP concern the essential characteristics which determine whether or not the taxes belong to the same category.

16It is against that background that the Commissione tributaria provinciale di Cremona decided to stay proceedings and refer the following question to the Court of Justice for a preliminary ruling:

‘Must Article 33 of [the Sixth Directive] be interpreted as meaning that it prohibits a charge to IRAP of the net value of production deriving from the regular exercise of an independently run activity whose object is the production of or trade in goods or the provision of services?’

Grounds

The question referred for a preliminary ruling

17By its question the referring court seeks essentially to know whether Article 33 of the Sixth Directive precludes the maintenance of a charge to tax with the characteristics of the tax at issue in the main proceedings.

18In order to interpret Article 33 of the Sixth Directive it must be viewed against its legislative background. To that end it is useful to recall the objectives pursued by the introduction of a common system of VAT, as outlined in the judgment in Joined Cases C‑338/97, C‑344/97 and C‑390/97 Pelzl and Others [1999] ECR I-3319, paragraphs 13 to 20.

19According to the preamble to First Council Directive 67/227/EEC of 11 April 1967 on the harmonisation of legislation of Member States concerning turnover taxes (OJ, English Special Edition 1967 (I), p. 14, ‘the First Directive’), harmonisation of legislation concerning turnover taxes should make it possible to establish a common market within which there is healthy competition and whose characteristics are similar to those of a domestic market, by eliminating tax differences liable to distort competition and hinder trade.

20A common system of VAT was introduced by Second Council Directive 67/228/EEC of 11 April 1967 on the harmonisation of legislation of Member States concerning turnover taxes — Structure and procedures for application of the common system of value added tax (OJ, English Special Edition 1967 (I), p. 16, ‘the Second Directive’) and by the Sixth Directive.

21Under Article 2 of the First Directive, the principle of the common system of VAT involves the application to goods and services, up to and including the retail trade stage, of a general tax on consumption exactly proportional to the price of the goods and services, whatever the number of transactions which take place in the production and distribution process before the stage at which tax is charged.

22However, VAT is chargeable on each transaction only after deduction of the amount of VAT borne directly by the costs of the various price components. The procedure for deduction is so arranged by Article 17(2) of the Sixth Directive that taxable persons are authorised to deduct from the VAT for which they are liable the VAT which the goods or services have already borne and that the tax is charged, at each stage, only on the added value and is finally borne by the ultimate consumer.

23In order to attain the objective of ensuring equal conditions of taxation for the same transaction, no matter in which Member State it is carried out, the common system of VAT was intended, according to the preamble to the Second Directive, to replace the turnover taxes in force in the various Member States.

24Article 33 of the Sixth Directive accordingly permits a Member State to maintain or introduce taxes, duties or charges on the supply of goods, the provision of services or imports only if they cannot be characterised as turnover taxes.

25In order to decide whether a tax, duty or charge can be characterised as a turnover tax within the meaning of Article 33 of the Sixth Directive, it is necessary, in particular, to determine whether it has the effect of jeopardising the functioning of the common system of VAT by being levied on the movement of goods and services and on commercial transactions in a way comparable to VAT.

26The Court has stated in this regard that taxes, duties and charges must in any event be regarded as being imposed on the movement of goods and services in a way comparable to VAT if they exhibit the essential characteristics of VAT, even if they are not identical to it in every way (see Case C-200/90 Dansk Denkavit and Poulsen Trading [1992] ECR I-2217, paragraphs 11 and 14, and Case C-308/01 GIL Insurance and Others [2004] ECR I-4777, paragraph 32).

27Article 33 of the Sixth Directive does not, on the other hand, preclude the maintenance or introduction of a tax which does not display one of the essential characteristics of VAT (Case C-130/96 Solisnor-Estaleiros Navais [1997] ECR I-5053, paragraphs 19 and 20, and GIL Insurance and Others , paragraph 34).

28The Court has established the essential characteristics of VAT. Notwithstanding certain differences of wording, it appears from the case-law that there are four such characteristics: it applies generally to transactions relating to goods or services; it is proportional to the price charged by the taxable person in return for the goods and services which he has supplied; it is charged at each stage of the production and distribution process, including that of retail sale, irrespective of the number of transactions which have previously taken place; the amounts paid during the preceding stages of the process are deducted from the tax payable by a taxable person, with the result that the tax applies, at any given stage, only to the value added at that stage and the final burden of the tax rests ultimately on the consumer (see, inter alia, Pelzl and Others , paragraph 21).

29In order to prevent outcomes which are inconsistent with the objective pursued by the common system of VAT as set out in paragraphs 20 to 26 of the present judgment, any comparison of the characteristics of a tax such as IRAP with those of VAT must be made in the light of that objective. In that connection, particular attention must be paid to the need to safeguard the neutrality of the common system of VAT at all times.

30In this case, as regards the second essential characteristic of VAT, it must first be observed that, whereas VAT is levied on individual transactions at the marketing stage and its amount is proportional to the price of goods or services supplied, IRAP is, in contrast, a tax charged on the net value of the production of an undertaking in a given period. Its basis of assessment is the difference appearing in the profit and loss account between the ‘value of production’ and the ‘production costs’ as defined by Italian legislation. It includes elements such as variation in stocks, amortisation and depreciation, which have no direct connection with the supply of goods or services as such. In those circumstances, IRAP cannot be considered proportional to the price of goods or services supplied.

31Next, it must be observed, as regards the fourth essential characteristic of VAT, that the existence of differences in the method for calculating the deduction of tax already paid cannot exclude a tax from the prohibition laid down in Article 33 of the Sixth Directive if such differences are in fact technical in nature and do not prevent that tax from operating in essentially the same way as VAT. On the other hand, a tax levied on production in such a way that it is not certain that it will be borne, like a tax on consumption such as VAT, by the final consumer, is likely to fall outside the scope of Article 33 of the Sixth Directive.

32In fact, whereas, through the mechanism of the deduction of tax laid down by Articles 17 to 20 of the Sixth Directive, VAT taxes only the final consumer and is completely neutral as regards the taxable persons involved in the production and distribution process prior to the stage of final taxation, regardless of the number of transactions involved (Case C‑317/94 Elida Gibbs [1996] ECR I-5339, paragraphs 19, 22 and 23, and Case C‑427/98 Commission v Germany [2002] ECR I-8315, paragraph 29), that is not the case with IRAP.

33First, a taxable person cannot ascertain exactly the amount of IRAP already included in the purchase price of goods and services. Second, if, in order to pass on the burden of the tax due in connection with his own activities to the following stage in the distribution or consumption process, a taxpayer could include that burden in his sale price, the basis of assessment would then include not only the value added but also the tax itself, with the result that the IRAP would be calculated on an amount based on a sale price incorporating, in anticipation, the tax to be paid.

34In any event, even on the assumption that a taxable person liable to IRAP selling to final consumers will take account, in fixing his price, of the amount of the charge included in its general expenses, not all taxable persons have the possibility of thus passing on, or passing on in full, the burden of the tax (see, to that effect, Pelzl and Others , paragraph 24).

35It follows from all the foregoing considerations that, according to the legislation concerning IRAP, the tax is not intended to be passed on to the final consumer in a way that is characteristic of VAT.

36The Court has, it is true, held a tax which was levied as a percentage of the total sales effected and services provided by an undertaking during a specified period, less the purchases of goods and services by that undertaking during that period, to be inconsistent with the harmonised system of VAT. The Court observed in that case that the tax at issue was comparable, in essential respects, to VAT and that notwithstanding differences it retained its character as a turnover tax (see, to that effect, Dansk Denkavit and Poulsen Trading , paragraph 14).

37However, IRAP differs in that respect from the tax which was the subject of the above judgment in so far as the tax in that case was intended to be passed on to the final consumer, as is apparent from paragraph 3 of that judgment. That tax was levied on the same basis of assessment as that used for VAT, and it was collected in parallel with VAT.

38It follows from the foregoing considerations that a tax with the characteristics of IRAP differs from VAT in such a way that it cannot be characterised as a turnover tax within the meaning of Article 33(1) of the Sixth Directive.

39The answer to the question referred for a preliminary ruling must therefore be that Article 33 of the Sixth Directive must be interpreted as meaning that it does not preclude the maintenance of a charge to tax with the characteristics of the tax at issue in the main proceedings.

Costs

Costs

40Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the national court, the decision on costs is a matter for that court. Costs incurred in submitting observations to the Court, other than the costs of those parties, are not recoverable.

Operative part

On those grounds, the Court (Grand Chamber) hereby rules:

Article 33 of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment, as amended by Council Directive 91/680/CEE of 16 December 1991, must be interpreted as meaning that it does not preclude the maintenance of a charge to tax with the characteristics of the tax at issue in the main proceedings.

OPINION OF ADVOCATE GENERAL

JACOBS

delivered on 17 March 2005 ¹

Introduction

1This request for a preliminary ruling from the Commissione Tributaria Provinciale (Regional Tax Court) in Cremona raises essentially the question whether a tax such as IRAP — a regional tax on production levied in Italy — is compatible with the Community prohibition of national turnover taxes other than VAT.

Relevant Community legislation

2The essence of the Community's harmonised VAT system is set out in Article 2 of the First VAT Directive: ²

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

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

The common system of valued added tax shall be applied up to and including the retail trade stage.’

3That system of successive applications and deductions of tax thus envisages a chain of transactions in which the net amount payable in respect of each transaction is a specified proportion of the value added at that stage. When the chain comes to an end at the final stage of private consumption, the total amount levied will amount to the relevant proportion of the final price.

4More detailed rules are contained in the Sixth VAT Directive. ³

5Under Article 2 of the Sixth Directive a supply of goods or services effected for consideration by a taxable person acting as such is subject to VAT.

6A taxable person is defined in Article 4(1) as one who carries out an economic activity, whatever its purpose or result. Economic activities are, under Article 4(2), ‘all activities of producers, traders and persons supplying services’, together with the ‘exploitation of tangible or intangible property for the purpose of obtaining income therefrom on a continuing basis’. Under Article 4(5), however: ‘States, regional and local government authorities and other bodies governed by public law shall not be considered taxable persons in respect of the activities or transactions in which they engage as public authorities, even where they collect dues, fees, contributions or payments in connection with these activities or transactions.’

7Title X of the Sixth Directive provides for a number of transactions to be exempted from VAT. Article 13 lists the exemptions which apply to transactions within the territory of the country — essentially certain activities in the public interest, certain insurance and financial transactions (including the management of special investment funds) and certain transactions relating to immovable property — while Articles 14 to 16 list exemptions in international trade. Article 28c, ⁴ in Title XVIa, on transitional arrangements for trade between Member States, amends Article 16 to cover intra-Community trade and adds a small number of other exemptions in that context.

8The essentials of the right to deduct are set out in Article 17. Article 17(2) states: ‘In so far as the goods and services are used for the purposes of his taxable transactions, the taxable person shall be entitled to deduct from the tax which he is liable to pay (a) value added tax due or paid in respect of goods or services supplied or to be supplied to him by another taxable person ...’ Under Article 17(3)(b), exports from the Community, which are exempted under Article 15, give rise to a right to deduct input tax, unlike exempt domestic transactions.

9Finally, Article 33(1) of the Sixth Directive ⁵ provides:

‘Without prejudice to other Community provisions, in particular those laid down in the Community provisions in force relating to the general arrangements for the holding, movement and monitoring of products subject to excise duty, this Directive shall not prevent a Member State from maintaining or introducing taxes on insurance contracts, taxes on betting and gambling, excise duties, stamp duties and, more generally, any taxes, duties or charges which cannot be characterised as turnover taxes, provided however that those taxes, duties or charges do not, in trade between Member States, give rise to formalities connected with the crossing of frontiers.’

10According to the Court's settled case-law, that provision prohibits the Member States from introducing or maintaining taxes, duties or charges in the nature of turnover taxes. ⁶ It seeks to prevent the functioning of the common system of VAT from being jeopardised by fiscal measures of a Member State affecting the movement of goods and services and applying to commercial transactions in a manner comparable to VAT. ⁷ It is clear that the common system would be jeopardised if a tax similar in essential respects to VAT were to be applied by a Member State but were to escape the harmonisation considered necessary for the internal market.

11Taxes, duties and charges must in any event be regarded as being such measures if they exhibit the essential characteristics of VAT, even if they are not identical to VAT in all points. Those characteristics are defined by the Court's case-law as follows: VAT applies generally to transactions relating to goods or services; it is proportional to the price of those goods or services, whatever the number of transactions carried out; it is charged at each stage of the production and distribution process; and, finally, it is imposed on the added value of goods and services, since the tax payable on a transaction is calculated after deducting the tax paid on the previous transaction. Article 33(1) does not, on the other hand, preclude the maintenance or introduction of a tax which does not display one of the essential characteristics of VAT. ⁸

Relevant national legislation

12By Legislative Decree No 446 of 15 December 1997, ⁹ the Italian Republic introduced a tax — the imposta regionale sulle attività produttive, known as IRAP — providing regional authorities with a source of revenue to fund the exercise of their devolved powers.

13The rules governing the levying of IRAP are complex, with many cross-references to other legislation. I shall not set them out in detail here. However, it appears to be common ground that the fundamental features are as follows.

14Under Articles 2 and 3 of the Legislative Decree, IRAP is levied from those who regularly carry on an independently run activity with the object of producing or trading in goods or providing services. Most natural and legal persons, including State and public bodies and administrations, are liable for the tax, but certain joint investment funds, certain pension funds and certain European economic interest groups are exempt.

15Article 4(1) defines the basis of assessment as the net value deriving from production within the region. The precise method of determining that value varies somewhat according to the category of taxpayer, but as a basic principle for commercial undertakings it is the difference shown in the profit and loss account between, on the one hand, total proceeds from the activity, not including income from exceptional financial transactions, and, on the other, production costs not including staff or financial costs. For public authorities and noncommercial private undertakings, the tax basis is essentially the payroll.

16In accordance with Article 16, the basic rate of tax is 4.25% of the net value thus defined, which is doubled in the case of certain public administrations and which may be varied by the regional authority by up to one percentage point either way.

The reference for a preliminary ruling

17In 1999, the Banca Popolare di Cremona (‘Banca Popolare’) requested reimbursement of various sums which it had paid by way of IRAP in that and the previous year, arguing that the tax was unlawful because, inter alia, it was incompatible with Article 33 of the Sixth Directive.

18The validity of IRAP was also challenged in various other proceedings in Italy on grounds of alleged incompatibility with a number of provisions of the Italian Constitution. On 10 May 2001, in a judgment ¹⁰ to which this Courts attention has been drawn by both the referring court and all the parties which have submitted observations, the Corte Costituzionale (Constitutional Court) ruled that those challenges were unfounded.

19The tax authority subsequently refused to reimburse the sums claimed by Banca Popolare, which has challenged that refusal before the Commissione Tributaria Provinciale.

20The national court finds that:

like VAT, IRAP applies in general to all commercial transactions involving production of or trade in goods, or provision of services, in the context of a trade or professional activity;

as in the case of VAT, the basis on which IRAP is levied is the net value added by the taxpayer, although the method of calculation is different: whereas for VAT input tax is deducted from output tax, for IRAP costs are deducted from proceeds;

like VAT, IRAP is levied at every stage of the production or distribution process, since every operator producing taxable added value is liable to tax;

as in the case of VAT, the total amount of IRAP collected at the various stages up to final consumption is equal to the rate of IRAP applied to the price charged to the final consumer, so that it amounts to a general and proportional tax on the price at which goods or services are sold to the consumer.

21Considering those findings in the light of the Court's case-law on Article 33 of the Sixth Directive, the Commissione Tributaria takes the view that IRAP displays the essential characteristics of VAT, so that it appears incompatible with Community law and should therefore be disapplied by national courts.

22However, in view of the novelty of the point and the lack of specific case-law, it has decided first to request a ruling by the Court of Justice on the following question:

‘Must Article 33 of Directive 77/388/EEC (as amended by Directive 91/680/EEC) be interpreted as meaning that it prohibits a charge to IRAP of the net value of production deriving from the regular exercise of an independently run activity whose object is the production of or trade in goods or the provision of services?’

23Written observations have been submitted by Banca Popolare, the Italian Government and the Commission, all of which presented oral argument at the hearing. Banca Popolare and the Commission take the view that Article 33 prohibits a tax with the features of IRAP, while the Italian Government submits that those features are sufficiently different from those of VAT to fall outside the prohibition.

Assessment

24It is common ground that, in order to be caught by the prohibition in Article 33 of the Sixth Directive, a national tax must display all of the essential features of VAT which, according to the Court's case-law, are four in number, corresponding closely to the definition in Article 2 of the First Directive:

it applies generally to supplies of goods or services;

it is proportional to the price of those goods or services, whatever the number of transactions carried out;

it is charged at each stage of the production and distribution process; and

it is imposed on the value added to the goods and/or services in question.

25Possession of all four essential features of VAT is thus both a necessary and a sufficient condition for a tax to be prohibited under Article 33 of the Sixth Directive. However, it is equally undisputed that a tax does not escape the prohibition simply because it is not identical to VAT in all respects. ¹¹

26It is thus necessary to take the four features in turn, and consider whether IRAP exhibits them in at least a substantially identical form. I find it clearer to examine those features in the order used by the referring court, which is slightly different from that often used in the case-law. ¹² I shall begin therefore by considering whether IRAP is of general application, then whether it is imposed on the value added to supplies, next whether it is applied at all stages and finally whether it is proportional to the added value, whatever the number of transactions.

27Clearly, only the Italian courts are competent to determine the precise features of IRAP, which involve rather detailed questions of national law. However, on the basis of the descriptions given by the referring court in the order for reference and by the Corte Costituzionale in its judgment, ¹³ this Court is in my view in a position to consider whether a tax of the kind described possesses the essential features of VAT.

General application to supplies of goods and services

28The Commissione Tributaria states that it follows from Article 2 of the Legislative Decree that ‘IRAP applies, in general, to all commercial transactions involving production or trade, relating to goods and services and arising from the regular exercise of an activity intended for that purpose, that is, through undertakings, trades and professions’. As both Banca Popolare and the Commission point out, that indicates a very general degree of application for IRAP.

29The Court has held a tax not to be of general application when it applies only to limited categories of supplies of goods or services ¹⁴ or to specific categories of taxpayer. ¹⁵ However, it still exhibits this essential feature of VAT if it applies both to commercial activities which are subject to VAT and to other types of industrial or commercial supplies which are not so subject. ¹⁶

30It seems to me that IRAP displays the feature in question. The provisions of Articles 2 and 3 of the Legislative Decree, which define the activities giving rise to liability and the persons liable, are substantially very similar indeed to those of Article 4(1) and (2) of the Sixth Directive.

31No categories of goods or services appear to be excluded as such. Some categories of taxpayer are excluded but the exclusions are limited in number and extent, and seem to overlap substantially with certain exemptions under the Sixth Directive or with the exclusion of certain transactions which lie altogether outside the scope of VAT. Both in its written observations and at the hearing, Banca Popolare stated, without being contradicted, that all traders registered for VAT are subjected to IRAP.

32Also at the hearing, however, the Italian Government argued that, although IRAP may be described as generally applicable, it is not applicable to supplies of goods or services; it applies to wealth created and not to supplies made, so that for example an undertaking which in a given tax period produces 1000 motor vehicles but does not sell them will pay IRAP but not VAT in that tax period. IRAP is thus in any event, unlike VAT, a direct and not an indirect tax. The Italian Government also referred to certain Community conventions and Commission documents classifying IRAP as a direct tax. Banca Popolare vigorously disputed the assertion that IRAP was levied on goods produced but not yet sold.

33This Court is not competent to determine the stage at which IRAP is levied. However, I do not consider that the Italian Government's submission affects the categorisation of IRAP as generally applicable to supplies of goods and services.

34Classification of taxes into ‘direct’ and ‘indirect’ is not always either simple or even, for many purposes, relevant. Here, the question is not whether IRAP is to be categorised as a direct or an indirect tax, but whether it has the same essential features as VAT.

35However, a commonly accepted distinction between direct and indirect taxation is that the former burdens a (natural or legal) person's own available wealth or income, with no possibility of being passed on to any other person, whereas the latter is levied on spending or consumption and its burden may be — indeed, normally is — passed on to and borne by the ultimate consumer. In that light, it seems to me that the mechanism described by the Italian Government is that of an indirect tax, the burden of which will essentially be borne by the ultimate consumer.

36The Corte Costituzionale in its judgment states that IRAP ‘is not levied on the taxpayer's personal income but rather on the added value produced by independently run activities’. In rejecting certain arguments to the effect that the tax was levied on a ‘mere potentiality of taxable capacity’, it states that the basis on which IRAP is assessed is ‘the added value produced by independently run activities’. ¹⁷

37Thus, if IRAP may be levied at a time before goods are actually supplied, that does not prevent it from burdening the subsequent supply as if it had been levied at that moment, with a result exactly equivalent to that of VAT.

38On the other hand, it seems that IRAP may be in several respects of even more general application than VAT. State and regional authorities for example are apparently not exempt as they are under Article 4(5) of the Sixth Directive, and the tax is levied on exports with no possibility of a refund, unlike the situation under Articles 15 and 17(3)(b) of the Sixth Directive.

39However, it is clear from Dansk Denkavit ¹⁸ that where a tax has substantially the same scope as VAT, the fact that it extends also to other areas not covered by VAT does not detract from its resemblance to the latter tax for the purposes of its assessment under Article 33 of the Sixth Directive. Thus, only if its scope were substantially narrower would IRAP lack the essential feature of general application.

40It follows moreover from that principle, which must be kept clearly in mind when assessing the nature of a tax in relation to VAT, that where IRAP applies to situations not covered by VAT, any differences between its basis of assessment in those situations and the basis of assessment for VAT is simply irrelevant.

Imposed on the value added to goods or services supplied

41It is common ground that the method of calculating IRAP differs from that used for VAT.

42The referring court states: ‘With VAT, the fraction or portion of added value produced by an individual producer is quantified and assessed via the mechanism of deduction of tax from tax (input tax paid on purchases is deducted from output tax collected on sales). With IRAP, the fraction is calculated and assessed, roughly, by deducting the cost of acquiring the “thing sold” from the proceeds of the “sales”.’

43However, it goes on, in their results the two mechanisms are ‘as similar as two drops of water’.

44In any event, what has to be determined is whether IRAP is imposed on the value added to goods and services, not whether that value is calculated in the same way as for VAT. And it may be recalled that the Corte Costituzionale has found that IRAP is a tax on added value. ¹⁹

45Added value may be defined in different but equally valid ways and, as the Court has stressed, a tax need not be identical to VAT in all respects in order to fall foul of the prohibition in Article 33 of the Sixth Directive.

46It seems from the information in the case-file that the basis of assessment for IRAP is essentially the difference between the proceeds and the costs (not counting wages or certain financial costs) of the taxpayer's productive activities during a given tax period — normally, it appears, a calendar year. That may clearly be viewed as one, though not the only, way of defining the value added by the taxpayer to the goods and services he supplies.

47VAT on the other hand is in theory levied on the full value of each taxable supply made, its amount being reduced by that of the tax already paid on the cost components of that supply (again excluding wages and many financial costs, which are exempt). In practice, however, the tax due on all supplies made in a given tax period — of up to one year — is aggregated, as is the tax paid on all cost components acquired during that period, and the latter is deducted from the former. ²⁰

48Thus, there is little difference between the two in practice, and perhaps even less in results, even though VAT is conceived as being assessed on a transaction-by-transaction basis. And the existence of what the referring court describes as ‘trivial accounting points of negligible consequence’ cannot in my view be sufficient to overcome that essential similarity if the prohibition of other duties or charges having the nature of VAT is to have any teeth at all.

49Indeed, in Dansk Denkavit, ²¹ the Court found to be contrary to Article 33 of the Sixth Directive a tax which it noted was levied as a percentage ‘of the total sales effected and services provided by each undertaking during a specified period, less the purchases of goods and services by that undertaking during that period’ — a description of a mechanism clearly very close to that by which IRAP is calculated.

50The Italian Government does however point to one distinction which might appear significant. Because under the VAT system a taxable person may deduct input tax as soon as it is incurred, regardless of the amount of output tax due during the same tax period, situations can and do arise in which the net payment in a particular period is from the tax authority to the taxable person rather than the reverse. With IRAP, that is impossible: if in a given tax period outgoings exceed receipts, the tax is simply nil.

51It is true that the right to deduct is an expression of the central principle that VAT must be completely neutral as regards the burden on all the taxable economic activities of a business, and as such an essential part of the VAT system.

52However, the fact that another tax does not use such a mechanism, and may thus not have the same degree of fiscal neutrality, does not affect the question whether it is levied on the value added by the taxpayer.

53In that regard, we may again draw an analogy with the position taken by the Court in Dansk Denkavit, ²² and conclude generally that a tax does not lose the essential features of VAT merely because its scope is broader or because it has other additional features. What matters rather is the extent, if any, to which it may lack any of the essential features referred to.

54In short, both VAT and IRAP are levied on the value added to goods and services; that situation is not affected by the fact that, unlike VAT, IRAP is not ‘reimbursed’ when, exceptionally, value is lost rather than added. It is in any event in the very nature of economic activity that such cases are marginal.

Charged at each stage of the production and distribution process

55Although the Court has referred to charging at each ‘stage’ of the production and distribution process, it is clear from Article 2 of the First Directive that what is meant is charging at the stage of each transaction in that process. It is not in the nature of a turnover tax to be charged at stages which are purely internal to the taxable person's business, and VAT is not charged at such stages.

56Article 2 of the Legislative Decree states that the criterion for subjection to IRAP is ‘the regular exercise of an independently run activity whose object is the production of or trade in goods or the provision of services’, and Article 4(1) that the tax applies to the value of net production arising from the activity carried on within the relevant region.

57In that regard, the Commissione Tributaria states that ‘IRAP is levied at every stage of the production or distribution process, since every trader involved in a stage of the cycle, producing taxable added value, is considered by the law to be liable to tax’.

58IRAP thus appears to conform to the same pattern as VAT. It is levied on the businesses of all those who carry on a taxable activity, so that where the goods or services of one business are used by another business for the purposes of providing its own goods or services, and the latter are in turn used by a third business which makes supplies to final consumers, the tax will be charged in respect of each stage in that process. Again, the charge is global rather than on a transaction-by-transaction basis but there can be no doubt that it applies at each stage, up to and including the retail stage, as specified in the First Directive.

Proportional to the price of goods or services, whatever the number of transactions

59In this regard, the referring court notes that ‘the amount of IRAP collected in the various stages of the cycle, from production up to the final consumer, is equal to the rate of IRAP applied to the selling price of goods and services charged to the final consumer. Despite its fractional basis, therefore, IRAP in fact acts as a general and proportional tax on the price of transferring goods or services to the consumer.’

60IRAP is levied at one of two rates, expressed as a percentage of the basis of assessment, which are laid down in the Legislative Decree but may be varied within limits by the competent regional authority. ²³ Since the basis of assessment is essentially the value added by the taxpayer to the goods or services he supplies, it is thus proportional to that value.

61However, the global nature of IRAP undoubtedly allows economic operators a greater degree of flexibility than is the case with VAT. They may modulate the way in which they pass the burden of the tax on to their customers, or may even choose not to pass the burden on at all. VAT by contrast must be charged at the appropriate rate on each individual supply.

62Consequently, whereas the VAT system requires the amount of tax to be a specified proportion of the price charged on each supply of goods or services, so that at least for accounting purposes it remains strictly ‘proportional, whatever the number of transactions’, that may not be literally true in respect of IRAP, whose amount as a proportion of the price of any given supply may vary considerably or may even be impossible to determine.

63I do not, however, consider that point to be very relevant to the overall assessment.

64First, as a matter of economic reality, the burden of a tax levied at any stage in a trading chain will in general be passed on down the chain.

65Exceptionally and in the short term, some economic operators may for a variety of reasons have opted to absorb the burden of IRAP without passing it on to their customers, but in the long term it is likely that each operator's margin will adjust and the burden will ultimately be borne at the end of the chain.

66Second, exactly the same option is available, in economic terms, with regard to VAT. There is little or no practical or economic difference, for either party to the transaction, between the situation in which a trader decides to ‘absorb’ the burden of a tax and that in which he reduces his profit margin — or, perhaps more likely, redistributes his profit margins between various categories of supply in response to competitive forces. And neither situation affects the collection of the tax, which remains in constant proportion to the price of the supplies.

67In that connection, the Corte Costituzionale in its judgment of 10 May 2001 considered that ‘the economic burden of the tax may in fact be passed on in the price of the goods or services produced, according to the laws of the marketplace, or be wholly or partly recouped by means of appropriate organisational choices’.

68In Careda, ²⁴ the Court specifically stated that ‘in order to be characterised as a turnover tax, within the meaning of Article 33 of the Sixth Directive, the tax in question must be capable of being passed on to the consumer’, ²⁵ but that it is not necessary for the relevant national legislation expressly to provide that it may be so passed on, or for such passing on to be recorded in an invoice or equivalent document.

69If a Member State could introduce what is essentially a tax on added value but escape the prohibition in Article 33 of the Sixth Directive by ensuring that the amount of tax need not remain constant as a proportion of the price of each individual supply of goods or services, that prohibition would in effect be rendered inoperative and the harmonisation required by the internal market could be circumvented. ²⁶

Conclusion as regards the compatibility of IRAP with Community law

70I thus reach the view that a tax such as IRAP possesses the essential features of VAT and is caught by the prohibition embodied in Article 33 of the Sixth Directive.

71However, it must also be considered what concrete effects that conclusion entails.

Possibility of temporal limitation of the effects of the judgment

72According to consistent case-law, individuals are entitled to reimbursement of national charges levied in breach of Community law. ²⁷ It appears that, if IRAP were found incompatible with Community law, under Italian procedural rules the retroactive entitlement to reimbursement would cover 48 months.

73At the hearing, the Italian Government stated that the amounts collected and used to finance the activities of regional authorities during that period exceeded EUR 120 billion. In view of the serious consequences, it therefore requested that, if IRAP were to be found incompatible with Article 33 of the Sixth Directive, the temporal effects of the judgment should be limited — as for example in EKW. ²⁸

74The Court has consistently held that the interpretation it gives to a provision of Community law clarifies and defines the meaning and scope of that provision as it should have been understood and applied from the time of its entry into force.

75Exceptionally, however, having regard to the need for legal certainty, the Court may limit the possibility for parties to rely on the interpretation in such a judgment to call in question legal relations established in good faith in the past. Before deciding to impose such a limitation, it verifies that two essential criteria are fulfilled, namely that those concerned should have acted in good faith and that there should be a risk of serious difficulties. ²⁹

76As regards good faith, the Court has taken account in particular of the position taken by the Commission in relation to the Member State's legislation. The Court has accepted, for example, that a Member State can rely on a failure by the Commission to take infringement proceedings against it. A Member State must be entitled all the more to rely on the Commission's express acceptance of the compatibility of its legislation with Community law.

77In the present case, the Italian Government relies on the fact that the legislation was notified to the Commission in draft form (at which stage the tax was designated ‘IREP’), and that in a reply of 10 March 1997, produced by Italy with other documents at the hearing, the Director-General responsible for customs and indirect taxation wrote: ‘As regards ... IREP, after careful examination of the documentation provided, I can inform you that, in its present state, the proposal for this new tax does not appear incompatible with the legislation applicable in the field of value added tax. None the less, I reserve the right to reexamine it in the light of any amendments and/or of the implementing provisions to be adopted.’

78In the light of that letter, and of the absence of any subsequent critical reaction from the Commission, the Italian Government considers that it was entitled to conclude that the tax was not incompatible with Community law. The agent for the Commission, however, argued at the hearing that the letter embodied merely a provisional view taken by the Commission's services, and that no definitive position had ever been taken by the Commission itself. The registry subsequently sent the Commission the documents produced at the hearing, for possible comments, but the Commission added nothing on this point.

79As regards the risk of serious difficulties, the Italian Government relies on the very large amounts potentially involved in claims for reimbursement of what is now the main if not the only source of revenue for the regions, and on the catastrophic effects which granting those claims would thus have on regional funding.

80There appears to me to be a strong argument for limiting the temporal effects of a finding that IRAP is incompatible with Community law. I am not persuaded by the Commissions view of the weight to be accorded to the letter of 10 March 1997; it was couched in unambiguous terms and signed by the competent Director-General, and not followed by any further action on the part of the Commission. The risk of serious difficulties appears moreover real; to adapt the words of the EKW judgment, ³⁰ an unlimited temporal effect might ‘retroactively cast into confusion the system whereby Italian regions are financed’.

81However, the question arises of the date which it might then be appropriate to set as a limit for that temporal effect.

82In EKW, following its consistent practice in such cases, the Court excluded reliance on its judgment in claims for reimbursement of tax paid or chargeable ‘prior to the date of the present judgment, except by claimants who have, before that date, initiated legal proceedings or raised an equivalent administrative claim’.

83However, it later transpired that all the regional authorities concerned in that case had amended their tax codes so as to limit considerably the possibility of succeeding in a claim, even for those who had already initiated proceedings. In all cases those amendments were made after delivery of the Opinion in EKW — and in all but one before the delivery of the judgment. ³¹

84In the present case, the problem is a different one. It appears from the Italian press that large numbers of Italian traders are already seeking or being encouraged to seek reimbursement of sums paid by way of IRAP, in anticipation of the Court's ruling in this case.

85Thus, in view of the effect of various tactics that have been or may still be adopted in anticipation of the Court's judgment, and of the danger of very serious disruption of regional funding — with no probable longterm overall benefit to taxpayers since any shortfall in funding must presumably be made up by other taxation — it might be appropriate to envisage a different approach from that taken in EKW and other cases.

86One such approach might be inspired by that frequently taken by the German Constitutional Court — a finding of incompatibility subject to a future date before which individuals may not rely on the incompatibility in any claims against the State, the date in question being chosen in order to allow sufficient time for new legislation to be enacted.

87For this Court to take such a step would be a considerable innovation. Such innovations have however been made in the past. It was an innovation for example in 1976 when in Defrenne ³² the Court limited the retroactive effect of its interpretation of a Treaty article. There were further innovations in 1980, when in Providence Agricole de la Champagne ³³ the Court applied the second paragraph of what is now Article 231 EC by analogy in a preliminary ruling, limiting the retroactive effect of a finding that certain Commission regulations were invalid, and again in 1988, when in van Landschoot ³⁴ it went a stage further, maintaining the effects of an invalid Community provision until such time as it was replaced by a valid provision.

88However, in the present case, it may be difficult for the Court to decide on the appropriate temporal limitation, especially since a departure from the Court's customary approach has been neither debated during the proceedings nor requested by the Italian Government. In view of the difficulties involved in choosing the appropriate limitation, it may be desirable for the Court to reopen the oral procedure to hear further argument on that point.

Conclusion

89I am therefore of the opinion that the answer to the question raised by the Commissione Tributaria should be that:

A national tax such as the imposta regionale sulle attività produttive which

is levied on all natural and legal persons who regularly carry on an activity with the object of producing or trading in goods or providing services,

is imposed on the difference between the proceeds and costs of the taxable activity,

is charged in respect of each stage in the production and distribution process corresponding to a supply or set of supplies of goods or services made by a taxable person, and

imposes a burden at each of those stages which is globally proportional to the price at which the goods or services are supplied

must be characterised as a turnover tax prohibited by Article 33(1) of the Sixth VAT Directive.

90However, for those seeking to rely on the ruling to be given by the Court, its effects should be subject to a temporal limitation, by reference to a date to be fixed by the Court.

¹ Original language: English.

² First Council Directive 67/227/EEC of 11 April 1967 on the harmonisation of legislation of Member States concerning turnover taxes (OJ, English Special Edition 1967, p. 14).

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 (OI 1977 L 145, p. 1, hereinafter ‘the Sixth Directive’).

⁴ Introduced by Council Directive 91/680/EEC of 16 December 1991 supplementing the common system of value added tax and amending Directive 77/388/EEC with a view to the abolition of fiscal frontiers (OI 1991 L 376, p. 1).

⁵ As amended by Article 1(23) of Directive 91/680, cited in footnote 4.

⁶ See. most recently, Case C-308/01 GIL Insurance [2004] ECR I-4777, at paragraph 31, and the case-law cited there.

⁷ See Case C-437/97 EKW [2000] ECR I-1157, at paragraph 20, and the case-law cited there.

⁸ See GIL insurance, cited in footnote 6, at paragraphs 32 to 34, EKW, cited above, at paragraphs 21 to 23, and the case-law cited in both judgments.

⁹ Published in GURI No 298, of 23 December 1997, hereinafter ‘the Legislative Decree’; since amended.

¹⁰ Judgment 256/2001.

¹¹ See the case-law cited in footnotes 6 and 7 above.

¹² See points 11, 20 and 24 above.

¹³ See point 18 above.

¹⁴ Joined Cases 93/88 and 94/88 Wisselink [1989] ECR 2671, paragraph 20; Case C-109/90 Giant [1991] ECR I-1385, paragraph 14; Case C-208/91 Beaulande [1992] ECR I-6709, paragraph 16; Case C-347/95 UCAL [1997] ECR I-4911, paragraph 36; Case C-28/96 Fricarnes [1997] ECR I-4939, paragraph 40; Case C-130/96 Solisnor-Estaleiros Navais [1997] ECR I-5053, paragraph 17; EKW, cited in footnote 7, paragraph 24; Case C-101/00 Tulliasamies [2002] ECR I-7487, paragraph 101; GIL Insurance, cited in footnote 6, paragraph 33.

¹⁵ Case C-347/90 Bozzi [1992] ECR I-2947, paragraph 14.

¹⁶ Case C-200/90 Dansk Denkavit [1992] ECR 2217, paragraph 15.

¹⁷ See point 18 above, at sections 6 and 10.1 of the reasoning in law in the judgment.

¹⁸ Cited in footnote 16.

¹⁹ See point 18 above.

²⁰ See Article 28h of the Sixth Directive, replacing Article 22 concerning the obligations of persons liable for payment under the internal system, in particular paragraphs 4 to 6 of that article, which clearly envisage an aggregation of data and calculations for each relevant tax period.

²¹ Cited in footnote 16.

²² See points 29 and 39 above.

²³ See point 16 above.

²⁴ Joined Cases C-370/95, C-371/95 and C-372/95 [1997J ECR I-3721, paragraphs 15, 18 and 26.

²⁵ Paragraph 15, emphasis added.

²⁶ See point 10 above.

²⁷ For a recent example referring to earlier case-law, see Case C-62/00 Marks & Spencer [2002] ECR I-6325, at paragraph 30.

²⁸ Cited in footnote 7, paragraphs 55 to 60.

²⁹ See, most recently, the judgment of 15 March 2005 in Case C-209/03 Bidar, at paragraphs 66 to 69.

³⁰ At paragraph 59.

³¹ See Case C-147/01 Weber's Wine World [2003] ECR I-11365, paragraph 11 et seq.

³² Case 43/75 [1976] ECR 455, at paragraphs 69 to 75.

³³ Case 4/79 [1980] ECR 2823, at paragraphs 42 to 46; and in two other related judgments delivered on the same day — Case 109/79 Maïseries de Beauce [1980] ECR 2883, paragraphs 42 to 46, and Case 145/79 Roquette Frères [1980] ECR 2917, paragraphs 50 to 52.

³⁴ Case 300/86 [1988] ECR 3443, at paragraphs 22 to 24.

OPINION OF ADVOCATE GENERAL

STIX-HACKL

delivered on 14 March 2006 (1)

Case C-475/03

Banca Popolare di Cremona

v

Agenzia Entrate Ufficio Cremona

(Reference for a preliminary ruling from the Commissione Tributaria di Cremona)

(VAT – Internal taxation – Regional tax on production)

Introduction

The proceedings

1In the present case, the Commissione Tributaria Provinciale di Cremona (Cremona Regional Tax Court) asks whether Article 33(1) of the Sixth VAT Directive (2) precludes the levying of a tax such as the Italian imposta regionale sulle attività produttive, known more generally by its acronym ‘IRAP’. In the main proceedings, Banca Popolare di Cremona (‘Banca Popolare’) seeks reimbursement of various sums which it paid by way of IRAP in 1998 and 1999.

2Following written and oral submissions from Banca Popolare, the Italian Government and the Commission, Advocate General Jacobs delivered his Opinion on 17 March 2005, (3) concluding that a national tax which

– is levied on all natural and legal persons who regularly carry on an activity with the object of producing or trading in goods or providing services,

– is imposed on the difference between the proceeds and costs of the taxable activity,

– is charged in respect of each stage in the production and distribution process corresponding to a supply or set of supplies of goods or services made by a taxable person, and

– imposes a burden at each of those stages which is globally proportional to the price at which the goods or services are supplied

is to be characterised as a turnover tax prohibited by Article 33(1) of the Sixth Directive.

3However, because the need to reimburse large sums of tax levied contrary to Community law might very seriously disrupt regional funding in Italy, and because the Commission appeared to have contributed by its conduct to the Italian Government’s belief that IRAP was compatible with Community law, he also recommended that the Court should fix a temporal limitation on the effects of its ruling.

4Moreover, in view of various tactics that might be adopted in anticipation of that ruling, he envisaged the possibility of a new approach to such limitation. He pointed out that some national courts may find a measure unlawful while fixing, in order to allow sufficient time for new legislation to be enacted, a future date before which individuals may not rely on that unlawfulness in any claims against the State. However, if such a course of action were to be contemplated in the present case, he thought it desirable for the Court to hear further argument on the point. Seven Member States subsequently requested a reopening of the oral procedure for that purpose.

5On 21 October 2005, the Grand Chamber decided to reopen the oral procedure, fixed a new hearing for 14 December 2005, and asked the parties to the main proceedings, the Member States, the Council and the Commission to express their views on the following questions: (4)

(a) What are the criteria for classifying a tax as a turnover tax within the meaning of Article 33(1) of the Sixth Directive, having regard to the purpose of that provision and the functioning of the market?

(b) To what extent are bank transactions capable of being subject to such a tax?

(c) Regard being had to Advocate General Jacobs’s Opinion, in what circumstances and in what way may the effects of a preliminary ruling delivered by the Court be subjected to a temporal limitation?

6Banca Popolare, 13 Member States and the Commission submitted written responses, though only a few Member States addressed the first or second questions; and Banca Popolare, 12 Member States and the Commission presented oral submissions at the second hearing, the Member States again focussing for the most part exclusively on the aspect of temporal limitation.

The characteristics of IRAP

7As Advocate General Jacobs pointed out in his Opinion, only the Italian courts are competent to assess the precise features of IRAP. The role of this Court is to interpret Community law in such a way that the referring court can usefully apply it to the tax which it has to assess. (5) In doing so, this Court must therefore assume the nature of that tax to be as described in the order for reference.

8That description is worded as follows:

‘(1) It flows from the definition in Article 2 [(6)] that IRAP applies, in general, to all commercial transactions involving production or exchange of goods and services arising through the regular exercise of an activity intended for that purpose, that is, through undertakings, trades and professions.

There is therefore an exact correlation between the “precondition of the (IRAP) tax” set out in Article 2 and the area of “taxable transactions” laid down in Article 1 of the decree introducing VAT, which constitutes the precondition of that tax.

(2) Under the first paragraph of Article 4, IRAP taxes the net value deriving from production, that is, the net value “added” to the product by the producer.

IRAP is therefore a tax on the “added value” produced, and indeed the term “vap” [(7)] is used to denote the basis of assessment of the new tax.

Even the taxable subject-matter of IRAP is exactly the same as that of VAT. With VAT, the fraction or portion of added value produced by an individual producer is quantified and assessed via the mechanism of deduction of tax from tax (output tax paid on purchases is deducted from input tax collected on sales). With IRAP, the fraction is calculated and assessed, roughly, by deducting the cost of acquiring the “thing sold” from the proceeds of the “sale”.

The fractional assessment of VAT and IRAP are as similar as two drops of water, notwithstanding the difference in the technical devices used for calculating the taxable amount and the tax itself. To establish how much VAT an individual trader must pay, the VAT on the cost of sales is deducted from the VAT on sales; if the difference produces a positive figure, it is the VAT due to the tax authorities, and from this the taxable value added by the trader can be quantified.

The process is reversed for IRAP.

Instead the added value produced is the starting point for obtaining the amount of tax due rather than the other way around. This difference does not affect the essence of the question which is this: both taxes tax, at all stages of the production and distribution process, the fraction of value added by the individual producer involved in the production and/or distribution process. Whereas VAT deducts tax from tax, IRAP deducts basis from basis, costs from amounts due.

(3) IRAP is levied at every stage of the production or distribution process, since every trader involved in a stage of the cycle, producing taxable added value, is considered by the law to be liable to tax. Suppose that there are three stages of the cycle, depending on Tom, Dick and Harry; all three are separately and independently liable to IRAP, each assessed out of 100. The same occurs with VAT.

(4) Finally it should be noted that the amount of IRAP collected in the various stages of the cycle, from production up to the final consumer, is equal to the rate of IRAP applied to the selling price of goods and services charged to the final consumer. Despite its fractional basis, therefore, IRAP in fact acts as a general and proportional tax on the price of transferring goods or services to the consumer.’

9Advocate General Jacobs based his analysis on that description, and on findings made by the Italian Corte Costituzionale (Constitutional Court) in judgment 256/2001 of 10 May 2001, in which it dismissed various challenges to IRAP on grounds of alleged incompatibility with the Italian Constitution.

10In particular, he noted, the Corte Costituzionale had held that IRAP ‘is not levied on the taxpayer’s personal income but rather on the added value produced by independently run activities’ and that ‘the economic burden of the tax may in fact be passed on in the price of the goods or services produced, according to the laws of the marketplace, or be wholly or partly recouped by means of appropriate organisational choices’. (8)

11To the extent that any aspect of the national courts’ description of IRAP may differ from that in the submissions to the Court – and Banca Popolare, the Italian Government and the Commission have all provided their own descriptions – the Court must in principle accept the account given in the order for reference. However, the existence and nature of any such differences may indicate areas in which it may be helpful for the Court to consider also how the answer it gives might apply to possibly slightly different features. In any event, if the referring court’s assessment of the characteristics of IRAP is disputed in the main proceedings, its judgment will presumably be subject to appeal on that ground within the national judicial order.

The assessment

12My assessment of the case will accordingly be in two parts: a first part dealing with the compatibility of a tax such as IRAP, and a second part dealing with the possibility of a temporal limitation of the effects of the judgment.

13Within each of those parts, I shall set out first a number of general considerations, including a review of the Court’s case-law, then I shall seek to apply those considerations to the circumstances of the present request for a preliminary ruling.

I – The compatibility of a tax such as IRAP with the Sixth Directive

A – General considerations

1. Taxes prohibited by Article 33(1) of the Sixth Directive

14There is a well-established body of case-law concerning the circumstances in which a national tax falls foul of the prohibition of levies other than those ‘which cannot be characterised as turnover taxes’ in Article 33(1) of the Sixth Directive. (9) In particular, there are a number of specific criteria in that case-law which the national court evidently had in mind in drafting its order for reference, and against which Advocate General Jacobs assessed IRAP as described in that order. (10)

15The fact that on reopening the oral procedure the Court has asked the parties, the Member States and the institutions for their views on the criteria for classifying a tax as a turnover tax within the meaning of Article 33(1), having regard to the purpose of that provision and the functioning of the market, might suggest that it envisages the possibility of reviewing, refining or developing those criteria. I shall therefore consider them in some detail.

2. Synthesis of the existing case-law

16The Court’s previous case-law in this field comprises in particular (11) the judgments in Rousseau Wilmot, (12)Bergandi, (13)Wisselink, (14)Giant, (15)Dansk Denkavit, (16)Bozzi, (17)Beaulande, (18)Careda, (19)UCAL, (20) Solisnor, (21) SPAR, (22)Pelzl, (23)EKW, (24)Tulliasiamies (25) and GIL Insurance. (26) Of those cases, it may be noted that only Bergandi, Wisselink and Dansk Denkavit were decided by a plenary formation of the Court, the remainder being decided by chambers.

17In that case-law spanning a period of nearly 20 years, a number of strands, and a certain development, can be discerned.

18First, the Court has had regard to the objectives of the VAT legislation and to the purpose of the prohibition of other types of turnover tax. Next, it has defined a number of characteristics of VAT, possession of which brings another national tax within the scope of the prohibition. Finally, in the course of examining the various national taxes in issue, it has identified various specific characteristics which are or are not permissible in that regard, together with a number which it has not regarded as relevant.

19Three principal objectives are identified for the adoption of the common system of VAT:

– to abolish and replace cumulative multistage turnover taxes as formerly applied in many Member States; (27)

– to establish a common market within which there is healthy competition and whose characteristics are similar to those of a domestic market, by eliminating tax differences liable to distort competition and hinder trade; (28) and

– to ensure equal conditions of taxation for a given transaction, regardless of the Member State in which it takes place. (29)

20The purpose of the prohibition of other turnover taxes is stated in many judgments (30) to be to prevent the functioning of the common system of VAT from being jeopardised, and it is specified that such a result would ensue from the imposition of taxes, duties or charges levied on the movement of goods and services in a way comparable to VAT. In Wisselink, (31) a further more general reference is made to jeopardising the objectives underlying the common system of VAT at the current stage of harmonisation.

21The characteristics of VAT are described initially by reference to Article 2 of the First Directive and to Article 17(2) of the Sixth Directive: the principle consists in the application to goods and services up to the retail stage of a general tax on consumption which is exactly proportional to the price of the goods and services, irrespective of the number of transactions which take place in the production and distribution process before the stage at which the tax is charged; however, VAT is chargeable on each transaction only after deduction of the amount of VAT borne directly by the costs of the various price components, taxable persons being authorised to deduct from the tax for which they are liable the tax which the goods have already borne. (32)

22Then, from Dansk Denkavit onwards, there is a more formal list of ‘essential characteristics’ of VAT, namely:

– it applies generally to transactions relating to goods or services;

– it is proportional to the price charged by the taxable person in return for the goods and services which he has supplied;

– it is charged at each stage of the production and distribution process, including that of retail sale, irrespective of the number of transactions which have previously taken place;

– the amounts paid during the preceding stages of the process are deducted from the tax payable by a taxable person, with the result that the tax applies, at any given stage, only to the value added at that stage and the final burden of the tax rests ultimately on the consumer. (33)

23The characteristics of a national levy which is caught by the prohibition in Article 33(1) of the Sixth Directive are described, first, in general terms as those which have the effect of compromising the functioning of the common system of VAT by burdening the movement of goods and services and commercial transactions in a way comparable to VAT. (34) In those judgments in which the four essential characteristics of VAT are listed, (35) it is specified that taxes, duties and charges must in any event be regarded as being imposed on the movement of goods and services in a way comparable to VAT if they exhibit those essential characteristics. It is not however necessary for them to resemble VAT in every respect. (36)

24Then, at a more specific level, the Court has only once found a tax to be actually incompatible, in Dansk Denkavit, and it described the features of that tax as follows: (37)

– it was paid both on activities subject to VAT and on other industrial or commercial activities consisting in the supply of services for consideration;

– it was charged, in the case of undertakings which were taxable persons for VAT purposes, on the same basis of assessment as that used for VAT, in other words as a percentage of the volume of sales after deduction of purchases;

– unlike VAT, it was not paid on importation, but was charged on the full sale price of imported goods at the first sale in the Member State concerned;

– unlike VAT, it did not have to be indicated separately on invoices; and

– it was charged alongside VAT.

25In Careda, (38) the Court further specified that in order to be caught by the prohibition, a tax must be capable of being passed on to the consumer.

26In the remaining judgments, however, the Court has found various national levies to be compatible with the Sixth Directive because their characteristics differed sufficiently from those of VAT. In most cases, the Court has based its finding on possession of a bundle of characteristics distinguishing the tax from VAT, but in Solisnor (39) and EKW (40) it considered that a lack of general application was sufficient in itself to exclude the tax from the prohibition; a limitation to certain categories of goods or services has also been taken into account in most of the other judgments and seems in any event to have been a feature of all the disputed levies, except perhaps those in Rousseau Wilmot and SPAR.

27Other characteristics which the Court has found to differ from those of VAT, and to be relevant when assessing the compatibility of a national tax, are:

– calculation of the tax on the basis of annual turnover, so that it is impossible to determine the precise amount passed on to customers; (41)

– imposition on the basis that an article is made available to the public, regardless of the amount or even the existence of a charge for use, or calculation on the basis of a deemed rather than an actual price; (42) more generally, calculation on a basis other than that of added value; (43)

– absence of any provision for deduction of input tax; (44)

– lack of direct or strict proportionality to the price of the transaction burdened; (45)

– imposition at only one stage in a chain of transactions; (46) however, in Wisselink, (47) the Court made it clear that a tax levied once only could still be contrary to Community law if it prevented the proper working of the VAT system;

– imposition on the taxable person’s input, and not output, transactions. (48)

28Finally, the Court has also found a number of characteristics not to be relevant when assessing the compatibility of a national tax:

– the designation of the tax in national law, the express wording of the legislation or the reasons for its adoption; (49)

– the fact that the tax is levied concurrently with VAT; (50)

– the absence of a specific requirement that the tax be passed on to customers; (51)

– the absence of a requirement that the tax be mentioned on an invoice or that an invoice be issued or held; (52)

– the fact that the tax is not paid on importation but on the first supply thereafter; (53)

– the fact that the tax uses a different basis of assessment when applied to taxable persons not subject to VAT. (54)

3. General comments on the case-law

29There are thus two broad aspects to the Court’s approach: a concern, at a fundamental level, to protect the principles underpinning the VAT system and to preclude interference with it; and a desire to define, more formally and in the interests of legal certainty, criteria whereby national taxes may be clearly identified as incompatible with the VAT system.

30A survey of the case-law indicates that, while the first concern has never been overlooked, the reference to specific criteria has acquired increasing importance in more recent judgments. Those Member States which have responded to the Court’s first question (55) have all favoured confirming that importance; Finland in particular pleads for firm adherence to the four ‘essential characteristics’ in the interests of clarity, consistency and legal certainty.

31That position is understandable. Member States must know what limits may apply to their freedom of action in introducing new forms of taxation or in maintaining or varying existing forms. A set of clear, objective criteria is important in that context.

32Yet there is always a danger that a purely formal application of any rules or criteria could lead to results at odds with the fundamental purpose envisaged when those rules or criteria were formulated – in the present case, that of ensuring that the proper functioning of the common system of VAT is not jeopardised.

33It therefore seems to me indispensable, when assessing the features of any disputed national levy against the essential characteristics of VAT, to continue to do so in the light of that purpose, with a view to preventing any interference with the basic objectives of replacing cumulative multistage turnover taxes, providing healthy competition in the internal market, eliminating tax differences liable to distort competition or hinder trade, and ensuring equal conditions of taxation for a given transaction, regardless of the Member State in which it takes place.

34In that context, the characteristics of a national tax may vary in their degree of similarity with the essential characteristics of VAT. It seems unlikely that, if a tax jeopardises the functioning of the common system because it possesses those characteristics in an identical form, it will cease to jeopardise the system simply as a result of minor differences.

35The Court has rightly taken the view that a tax need not be identical to VAT in all respects in order to be caught by the prohibition, but must in any event be regarded as being caught if it exhibits the essential characteristics of VAT. By the same token, I consider, what is necessary for each of those individual characteristics is not strict and absolute identity but essential, substantive identity.

36Conversely, it might conceivably be the case that in practice, and perhaps paradoxically at first sight, a tax could interfere less with the VAT system as it resembles it more. A hypothetical tax additional to VAT but otherwise identical to it in all respects would differ little in effect from an increase in the standard rate of VAT, for which there is at present no upper limit. (56) What is likely to interfere most with the common system is a tax which, whilst possessing essential features of VAT, also possesses features which conflict with it. (57)

37In that connection, Advocate General Jacobs accepted (58) that possession of all four essential features of VAT is a necessary condition for a national tax to be incompatible with the Sixth Directive, which would imply that in the absence of any one of those features a tax will be compatible.

38A slightly different interpretation of the case-law might also be possible.

39In all cases but Solisnor and EKW the Court has stressed that the national tax in question lacked more than one of the four essential characteristics; and in both those cases it was the absence of general application which was decisive. That might suggest that, of the four characteristics, that of general application is to be considered as having greater weight than the other three. However, it does not seem to me that such a conclusion can be drawn with any certainty, and I do not propose to adopt that interpretation.

40What then can be said, in general terms and with confidence, about the essential characteristics of VAT, viewed in the light of the purpose of the common system and of the prohibition of national taxes likely to jeopardise its functioning?

41At least a number of negative points can be made. A tax is not likely to jeopardise that functioning if it does not apply generally; taxes confined to specific categories of goods or services are not likely to interfere with the system as a whole. A tax which is not levied at each stage in the production or distribution chain is less likely to jeopardise the system; such taxes may affect a particular stage in the chain, but not the whole system. (59) A tax which is not proportional to the value added at each stage, and thus to the overall price at each stage, is less likely to interfere with the VAT system; flat-rate taxes can in general coexist in parallel with proportional taxes. (60) And of course a tax which is not capable of being passed on to the consumer cannot compromise the functioning of VAT as a tax on consumption.

42Before examining the application of the case-law, and of the criteria which it enunciates, to a tax such as IRAP, however, and still at a general level, it is necessary to consider the relevance, if any, of two specific points: the status of bank transactions in relation to turnover taxes, and the distinction between direct and indirect taxation in the light of Article 93 EC.

4. Subjection of bank transactions to turnover tax

43The Court asked for the views of the parties, the Member States and the Commission on the extent to which banking transactions are capable of being subject to a turnover tax within the meaning of Article 33(1) of the Sixth Directive.

44Banca Popolare, the French and Hungarian Governments and the Commission replied briefly, all agreeing that banking transactions may in principle be subject to such a tax (although there might be greater practical difficulties than in the case of other commercial transactions) but also stressing the broad exemptions from VAT for financial services. (61)

45The Hungarian Government considers as a result that a Member State is not precluded by Article 33(1) from imposing a tax other than VAT on banking transactions. Banca Popolare disagrees, stressing that the referring court’s question concerns the compatibility of IRAP ‘tout court’, and not of its application to banking transactions.

46I do not think that a deep analysis of this question would prove profitable. (62) Banking services come within the scope of VAT by virtue of Article 6(1) of the Sixth Directive; they are largely exempt under Article 13(B)(d); but Member States may allow taxpayers a right of option for taxation under Article 13(C)(b). If a tax of general application meets all the criteria to be caught by the prohibition in Article 33(1), it should not fall outside that prohibition simply because it applies also to a category of transaction which is exempt and for which, as the case may be, the Member State in question has not provided for an option for taxation. (63)

47It does not therefore seem to me relevant to the Court’s assessment that most of the transactions carried out by Banca Popolare, or by banks in general, are likely to be exempt from VAT.

5. Article 93 EC and the distinction between direct and indirect taxes

48Finally, I turn to a general point raised by a number of Member States in their observations, namely whether the possible classification of a tax as a direct tax may be relevant to assessment of its compatibility with the Sixth Directive.

49All the VAT directives are based on Article 93 EC (formerly Article 99 of the EC Treaty), under which the Council is to adopt provisions for the harmonisation of legislation concerning ‘turnover taxes, excise duties and other forms of indirect taxation’ to the extent ‘necessary to ensure the establishment and the functioning of the internal market’ (originally ‘in the interest of the common market’).

50It has been argued therefore that since Article 93 EC concerns only indirect taxation, the Sixth Directive cannot prohibit any levy which is not itself an indirect tax.

51In my view, however, that conclusion is not warranted.

52First of all, it may be noted that, as the Commission pointed out at the second hearing, the Court has never categorised a national tax as ‘direct’ or ‘indirect’ when assessing its compatibility with the Sixth Directive. (64) Clearly, no firm conclusion can be drawn from that fact, but it does indicate that the distinction between direct and indirect taxation has not as such been regarded hitherto as an essential criterion, and might suggest that it should be introduced as a criterion only if there are strong grounds for doing so, and it remains to be seen whether that is the case.

53In that connection, it should be recalled that the Treaty contains no definition of a difference between direct and indirect taxation, and it is commonly accepted that no complete, unambiguous and universally valid definition can be formulated.

54Certainly, the essence of the distinction is clear: a direct tax is collected directly from the person who bears the economic burden; an indirect tax is included in a sum paid by that person to another, who does not bear the economic burden but who accounts for the tax.

55Typical direct taxes include those on personal wealth, property or income; and it may be the case that only taxes levied on individuals as such are wholly direct in nature. By contrast, VAT as regulated by the Sixth Directive is an indirect tax par excellence, since it is completely neutral as regards the economic operators from whom it is collected and is in principle always passed on to the final consumer as an identifiable proportion of the price (and as a specified sum when an invoice is issued).

56However, the situation is not always as clear-cut. Some taxes which are primarily direct may partake of the nature of indirect taxation, and vice versa. And even if a satisfactory criterion could be found for distinguishing in law between direct and indirect taxation, some of the effects of a tax such as IRAP seem capable of overlapping with those of VAT, so that interference between the two cannot be ruled out.

57Next, it has been rightly pointed out that Article 93 EC clearly cannot provide a valid legal basis for Community harmonisation of direct taxation. Yet, just as clearly in my view, it can provide such a basis for Community legislation prohibiting national taxation likely to jeopardise the functioning of a form of harmonised indirect taxation – such as VAT. It does not seem to me necessary to require a different legal basis simply because the national levy in issue may have at least some characteristics of direct taxation. What matters is whether it possesses features which are likely to jeopardise the functioning of the VAT system, regardless of whether it also possesses others which are not – and it should be remembered that only offending features will fall foul of the prohibition based on Article 93 EC.

58Put more succinctly, Article 93 EC does not allow Community legislation to encroach on Member States’ fiscal sovereignty in the field of direct taxation; conversely, it does not allow Member States to adopt, in their exercise of that sovereignty, measures likely to jeopardise agreed harmonisation of indirect taxation. Consequently, it may serve as a valid legal basis for legislation which precludes such measures.

59Finally, it may be noted that although since 1989 (65) all VAT directives appear to have been adopted on the basis of Article 93 EC (or its predecessor Article 99 of the EC Treaty) alone, that was not true for earlier directives. Until 1986 (66) they were based on both Article 99 and Article 100 of the EC Treaty, that is to say the current Articles 93 and 94 EC. Under the latter, the Council is to issue directives for the approximation of such national provisions ‘as directly affect the establishment or functioning of the common market’.

60Thus the Sixth Directive, being among the earlier group, was adopted on the basis not only of a Treaty provision which authorises harmonisation of indirect taxes but also of another provision which authorises more generally all harmonisation in direct relationship with the establishment and functioning of the common market.

61Consequently, there is in my view no reason why the prohibition of national turnover taxes other than VAT may not extend to all taxes which are capable of jeopardising the functioning of the VAT system. That depends on the features and effects of each tax, and not on a theoretical assignment to the class of direct or indirect taxation. There do not appear to be any cogent grounds for introducing such a criterion into the assessment of compatibility with Article 33(1) of the Sixth Directive, and Article 93 EC, as the legal basis of the Sixth Directive, is therefore of no direct assistance in this regard.

6. Conclusion on the general considerations concerning compatibility with the Sixth Directive

62I thus reach the view that neither the specificity of bank transactions nor the question of classification as direct or indirect taxation need influence the assessment in this case, which should be based on an examination of the four essential characteristics all of which must be present for a national tax to fall within the prohibition in the Sixth Directive.

63However, it seems to me that the Court faces, with regard to certain aspects of those criteria, a choice between a narrow application and a broader application, the latter being at least implicitly inherent in Advocate General Jacobs’s analysis.

64And it may be seen from my outline of the case-law that both the broader and the narrower approach are already present, to varying degrees, in the Court’s existing case-law, which may thus have maintained a degree of uncertainty. In the present case, the Court must dispel any such uncertainty by a clear indication as to whether the four essential characteristics, used as criteria for determining whether a national tax is prohibited by the Sixth Directive, are to be viewed purely formally or in the light of the objectives of the prohibition and of the harmonised VAT system as a whole.

65Given moreover the status of this case – the attention which it has attracted, the fact that, unlike most of the previous cases, it is to be decided by a Grand Chamber of the Court and the fact that the procedure has been reopened specifically to consider, inter alia, the criteria for classifying a tax as a turnover tax within the meaning of Article 33(1) of the Sixth Directive – it must also be borne in mind that the choice made will determine decisively the course to be followed in future judgments.

B – Application to a tax such as IRAP

66I shall now examine how the criteria developed in the Court’s case-law should be applied to IRAP, bearing in mind that it is not for this Court to define the characteristics of that tax. That is for the Italian courts, and the description in the order for reference should be taken as authoritative as a matter of principle. However, consideration may be given to aspects of that description which appear to be contested.

67Advocate General Jacobs did, of course, examine the same criteria in his Opinion, and there would be little to be gained by repeating his analysis.

1. Generality of application

68The first essential characteristic of VAT according to the Court’s case-law is that it applies generally to transactions relating to goods and services.

69According to the order for reference, ‘IRAP applies, in general, to all commercial transactions involving production or exchange of goods and services arising through the regular exercise of an activity intended for that purpose’ and the ‘fractional assessment of VAT and IRAP are as similar as two drops of water, notwithstanding the difference in the technical devices used for calculating the taxable amount …’.

70Advocate General Jacobs dealt with this aspect at points 28 to 40 of his Opinion, and concluded that IRAP possessed the characteristic in question.

71In that light and in the light of paragraph 15 of the judgment in Dansk Denkavit, the general application of IRAP to goods and services does not seem to be an issue: it is undisputed that, unlike almost all of the national taxes examined by the Court and found to be compatible with the Sixth Directive, the application of IRAP is not limited to particular categories of goods or services.

72Further, a difference of opinion between Banca Popolare and the Italian Government, to which Advocate General Jacobs referred at point 32, seems to me to have been clarified at the second hearing. Banca Popolare denied that IRAP was levied on goods produced but not yet sold, thus burdening stocks and not only supplies. If I understood correctly at the hearing, it seems that the Government’s statement is strictly true but that since stocks are valued at cost price and the cost of production is deducted from the tax base the effect is that in almost all such cases the amount of tax levied is actually zero. Consequently, that issue need not detain the Court either.

73There remains however an aspect on which it may be necessary to consider whether a broader or a narrower view should be taken: despite the wording of the order for reference, it appears that IRAP is not calculated on individual transactions as such, whereas the Court’s case-law, inspired by Article 2 of the First Directive, defines VAT as applying generally to ‘transactions’. (And, as will become clear, that distinction is relevant to more than one of the essential characteristics of VAT.)

74Advocate General Jacobs concluded that in practice there is little difference between a tax calculated, like IRAP, on the basis only of a periodic aggregate and one calculated, like VAT, on a transaction-by-transaction basis for individual invoices and on the basis of a periodic aggregate for traders.

75It does indeed seem evident that the difference between total inputs and total outputs over a tax period must be the same as the sum of the differences between individual inputs and individual outputs over that same period.

76The Court could none the less apply its previous case-law strictly, considering that only levies calculated on individual transactions as such are caught by Article 33(1) of the Sixth Directive, regardless of periodic aggregation. In a number of judgments (67) the fact that a tax is calculated on the basis of annual turnover has been considered a relevant characteristic distinguishing that tax from VAT, although there does not seem to be any instance in which no other distinguishing characteristics have been present.

77Such an approach would make incompatibility conditional on a more exact correspondence than that suggested by Advocate General Jacobs between the manner of calculating the national tax and that of calculating VAT.

78It would also imply a change in the case-law as compared to Dansk Denkavit, delivered by a plenary formation of the Court: the tax found to be incompatible in that judgment was calculated according to a mechanism apparently very similar to that of IRAP, being charged ‘as a percentage of the volume of sales after deduction of purchases’.

79In my opinion, the broader view taken in Dansk Denkavit is the more appropriate, encompassing within the prohibition taxes which, although not calculated in precisely the same manner, lead to the same economic result for traders and consumers as those imposed on individual transactions. Such a view better serves the aim of ensuring that the functioning of the VAT system is not affected.

80Taking that view, and on the assumption that the method of calculation of the tax in question does give rise in practice to the same amount of tax due as a method based on the values of individual transactions (regardless of periodic aggregation), it seems to me clear that the characteristic of general application to transactions relating to goods and services is present in a tax such as IRAP.

81It is true that the Italian Government denies that IRAP, calculated on the overall results of a business, can be likened to VAT calculated on each of the individual transactions carried out by that business.

82However, its arguments are not based directly on the difference between the methods of calculation. Rather, it submits, first, that IRAP is imposed on the business as such and not on its transactions, so that it is a direct and not an indirect tax; (68) that is an aspect I have dealt with above at point 48 et seq., where I concluded that it was not a relevant consideration. Second, in the Italian Government’s submission, the aggregate value on which IRAP is based is not equivalent to the sum of the individual values on which VAT is based; that however is a submission concerning the nature of the added value used as tax base rather than the method of calculating the amount due, and I shall consider it in the context of the fourth essential characteristic, (69) where it is more relevant than here.

83Those considerations do not therefore affect my view on the assessment of a tax such as that described by the referring court, in relation to the first essential characteristic of VAT.

84Before turning to the second of those characteristics, I would mention briefly a submission made by the Hungarian Government, to the effect that a tax is not of general application if it is levied at a local or regional level, in particular if it is optional and/or the local or regional authority may determine the rate levied. That does not seem to me to be a relevant criterion; it was certainly not considered relevant by the Court in Pelzl or EKW, both of which involved regional taxes. (70) The question is rather whether the tax is general within its area of application, be that area national or merely local.

85I am consequently of the view that a national tax having the features described by the referring court shares with VAT the essential characteristic of general application to transactions relating to goods and services. If however, the Court were to decide – contrary to its decision in Dansk Denkavit – that the essential characteristic in question necessarily involves application to individual transactions, such a tax would not possess it.

2. Proportionality to price

86The second essential characteristic of VAT is that it is proportional to the price charged by the taxable person for the goods or services he supplies.

87The order for reference states that ‘the amount of IRAP collected in the various stages of the cycle, from production up to the final consumer, is equal to the rate of IRAP applied to the selling price of goods and services charged to the final consumer. … [T]herefore, IRAP in fact acts as a general and proportional tax on the price of transferring goods or services to the consumer’.

88Advocate General Jacobs dealt with this aspect at point 59 et seq. of his Opinion. He accepted that the mechanism of IRAP was such that it might not always remain strictly proportional to the price of each transaction, but considered that aspect not to be conclusive since, in essence, the effective burden of VAT, as opposed to the amount shown on the invoice, may be redistributed by a trader amongst the various types of supply he makes, by means of an adjustment of profit margins, in the same way as may be done for IRAP. Or, put another way, both taxes are proportional in nature and traders will, in the normal course of events, distribute the burden of each proportionally among their products and services; in either case they may depart from that distribution but will only do so in order to achieve a particular commercial purpose.

89It is true that in a number of cases (71) the Court has considered that a lack of strict proportionality, or a method of calculation which did not allow the precise amount of tax passed on to the consumer to be determined, was a relevant distinguishing characteristic, at least when taken with others, of a levy not prohibited by Article 33(1) of the Sixth Directive. If that case-law is followed, it seems to me that IRAP may also be distinguished from VAT on that ground.

90However, the tax found to be incompatible in Dansk Denkavit was described by the referring court in that case as ‘charged at each stage as a percentage of the undertaking’s sales … with deduction of purchases on which the levy has been paid at an earlier stage’, and not indicated separately on invoices – which seems also to be the situation with IRAP. And in Careda (72) the Court clearly decided that it was sufficient for a tax to be capable of being passed on to the consumer but unnecessary for there to be any requirement to that effect; in such circumstances it is obviously not possible to apply also the condition that the amount of tax must always be ascertainable as a constant proportion of the price of each transaction.

91The Court appears therefore to have varied between a narrower and a broader approach to the criterion of proportionality to price and in the present case it must decide which of those approaches is more appropriate.

92It seems to me that the broader approach is required if the aim of not jeopardising the functioning of the VAT system is to be kept in sight. It does not seem possible to consider that a tax interferes with that system if it is strictly proportional to transaction prices but not if it is only broadly proportional. As Advocate General Jacobs pointed out in essence at point 69 of his Opinion, that would enable a Member State to escape the prohibition by a perhaps very minor adjustment whilst none the less levying a tax which substantially overlaps with VAT in its operation.

93Another point which may however be considered in this context and which has been stressed by the Italian Government is the treatment of imports under IRAP. Although not specified in the order for reference, it appears to be common ground that IRAP burdens only the value added within (the relevant region of) Italy. Consequently, if an item is imported for (processing and) resale, the total amount of IRAP levied will be proportional only to the difference between the import cost and the selling price, and not to the whole of the selling price as would be the case for VAT.

94That feature does indeed distinguish IRAP from VAT and from the tax in Dansk Denkavit, the former being applicable to the value of imports as such and the latter to that value as incorporated in a subsequent supply. On a strict view, therefore, it is a feature capable of excluding IRAP from the prohibition.

95However, again I am not convinced that it does so on a broader view which takes account of the aim of preventing the functioning of the VAT system from being jeopardised.

96It is in the nature of national taxes – at least in the case of indirect taxes – that if imposed on added value they will not be imposed on value added outwith their fiscal jurisdiction; and a tax on imports as such would fall foul of Articles 25 and 26 EC. A criterion of proportionality to price in the context of a prohibition of national taxes which interfere with the operation of the common VAT system might therefore be taken to mean proportionality with regard to the value added to the price within the fiscal jurisdiction of the Member State concerned.

97On this criterion, therefore, I am of the view that IRAP as described is sufficiently proportional to the price charged on the transactions which it burdens not to be excluded from the prohibition in Article 33(1) of the Sixth Directive if that prohibition is viewed as precluding national taxes which overlap and thus interfere with the operation of VAT. That would not be the case if the criterion were to be applied in a more formal manner.

3. Charging at each stage

98The third essential characteristic of VAT is that it is charged at each stage of the production and distribution process, up to and including that of retail trade, whatever the number of transactions which have already taken place.

99The order for reference states that ‘IRAP is levied at every stage of the production or distribution process, since every trader involved in a stage of the cycle, producing taxable added value, is considered by the law to be liable to tax’.

100Advocate General Jacobs dealt with this aspect at points 55 to 58 of his Opinion, concluding that the criterion was met by that description.

101The principal objections to such a view are similar to those I have considered above, namely the fact that IRAP is not levied at the stage of actual transactions but on the basis of annual figures, and that it does not burden imports.

102With regard to the first objection, it seems to me that a strict approach would not be warranted in any event. IRAP is levied, as Advocate General Jacobs put it, ‘in respect of each stage in the production and distribution process corresponding to a supply or set of supplies of goods or services made by a taxable person’. This third ‘essential characteristic’ of VAT can only be taken to mean that there are no stages in the chain of supply which escape it, (73) and it is perhaps significant that most, if not all, of the levies found by the Court not to be incompatible with Article 33(1) of the Sixth Directive have been single-stage taxes. (74) The aim is essentially to protect the functioning of VAT from interference from cumulative multistage taxes, and the criterion of charging at each stage in the chain must be viewed in that light.

103With regard to the second objection, I would again say (75) that it is inherent in any national tax levied on added value that it is levied in respect of value added within the relevant fiscal territory. Since a tax applicable within the borders of a Member State is clearly capable of jeopardising a common, Community-wide system, it is not decisive whether that tax also applies to events occurring at those borders.

104Consequently, I agree with Advocate General Jacobs on this point, and see no scope for a narrower application which would exclude IRAP from the prohibition on this criterion.

4. Imposition on added value, with deduction of input tax

105The last of VAT’s four essential characteristics is that it is imposed on the value added to a supply at each stage, with a mechanism for deduction of the tax paid on the value added at previous stages.

106Advocate General Jacobs dealt with this characteristic at points 41 to 54 of his Opinion, concluding that it was essentially the same for VAT and for IRAP. Again, he took the broad approach which the Court must decide whether to follow or not.

107I shall deal first with the second, and in my view more straightforward, aspect of this characteristic, namely the existence of a deduction mechanism for input tax.

108Clearly, IRAP does not possess precisely such a mechanism because it is not calculated, as in the case of VAT, by deducting input tax from output tax, but by deducting input value from output value. What counts is that there is substantive similarity between those two types of mechanism or, as Advocate General Jacobs put it, that the difference between them is limited in practice.

109In any event, it seems to me, the existence of a deduction mechanism is not in any way an independent criterion, but rather a necessary corollary of the fact that the tax is levied on the value added at each stage and not on the cumulative value.

110Indeed, possession of a mechanism for deduction of input tax is clearly not itself a characteristic necessary for a tax to be prohibited, since one of the primary express aims of VAT is to replace individual cumulative multistage systems (which by definition lack a deduction mechanism) by a common non-cumulative multistage system.

111Potentially more problematic is the question of the nature of the added value itself.

112The referring court states that: ‘IRAP taxes the net value deriving from production, that is, the net value “added” to the product by the producer. [It] is therefore a tax on the “added value” produced … the fraction or portion of added value … is calculated and assessed, roughly, by deducting the cost of acquiring the “thing sold” from the proceeds of the “sale”.’

113On that basis, IRAP would appear to possess the fourth essential characteristic of VAT.

114The Italian Government has however objected that, while IRAP is indeed imposed on ‘added value’ in an economic sense, it is not the same added value as for VAT. It states that the added value on which IRAP is levied is calculated on the basis not only of costs of input supplies and receipts from output supplies but also of criteria such as variations in stocks (whether or not as a result of supply), variations in value of current work performed, social security contributions, amortisation etc.; and that IRAP allows deduction of imports but burdens exports, whereas VAT is levied on imports but reimbursed on exports. As a result, two firms which account for similar amounts of VAT may pay very different amounts of IRAP.

115If that is so, it could be deduced that IRAP is not caught by the prohibition on a strict application of this criterion.

116On the other hand, it might be asked whether the degree of difference is not important. It seems to me that a tax should not escape the prohibition in Article 33(1) of the Sixth Directive simply because the added value on which it is levied is defined in different terms from those of the directive. For it to be caught, there must none the less be a substantive similarity between the two types of added value likely to cause interference and thereby jeopardise the functioning of the common system. There are two levels to the similarity in question.

117The first is the central principle characterising the tax base, which must be clearly definable as the value added at each stage for there to be substantive similarity. In the case of IRAP, that does not appear to be disputed, and can be acknowledged by the Court in the light of the legislation submitted to it.

118The second level is the detailed content of the basis of assessment, the elements included in or excluded from the added value taxed. Here, it is common ground that not all the elements relevant for VAT are relevant for IRAP, and vice versa. However, it does not seem to me that a mere enumeration of those elements is of assistance; what is in issue is substantive similarity, and that can be determined only by looking at substantive effects.

119This Court does not have sufficient information on such effects, nor is it the proper forum for establishing them; a final determination can only be made in the Italian courts. The Court can none the less provide guidance as to criteria whereby a substantive similarity can be objectively identified. I propose a test based on parallelism between the amounts of VAT and of IRAP levied on the value added by each business.

120If two taxes are calculated at different rates on the same basis of assessment, the ratio between the two will remain constant for every business concerned. One could plot a graph showing the amount of each tax which a number of businesses in different sectors, arranged progressively from the smallest to the largest, had to pay to the tax authorities, and the two lines would be parallel.

121If one element in the tax base were modified for one of those taxes, that might well affect the parallelism, the constancy of the ratio. The greater the number of elements removed from one tax base and/or added to the other, the more likely it would seem that the parallelism would be affected.

122Yet that need not always be so. If the basis of assessment for both taxes were added value, but certain elements of that value were present in the case of one tax and absent in the case of the other, the added value in the latter case might still remain a constant though lower proportion of that in the former, so that the parallelism between the two graphs plotted was unaffected.

123In such a situation, it would in my view have to be concluded that there was substantive similarity between the two notions of added value, since the same effect could be achieved by adjusting the rate of taxation rather than the definition of the tax base. Moreover, it would be clear that the nature of the activity was irrelevant and that strategic choices made by each business – whether to invest in more personnel or more machinery, whether to borrow or to plough back profits, and so on – did not affect that result.

124If however the differences between the component elements of the two tax bases led to a flagrant lack of parallelism between the two graphs, with random variations, it would in my view have to be concluded that there was no substantive similarity between the taxes.

The same would be true if the variations were not random but could be systematically attributed to strategic choices of the kind exemplified above, having different effects on VAT and the disputed tax.

But in the case of differences between sectors of activity, I would reach that conclusion only if there were also variations within sectors; a parallel graph within each sector would be strongly indicative of substantive similarity of the tax base.

125Such a test seems to me to be adequately objective even if, of necessity, some of the details must be left to the assessment of the national courts with, if appropriate, the benefit of expert statistical advice. In particular, it will be necessary to determine what constitutes a representative sample of businesses and the extent to which minor variations in the ratio between the amounts of the two taxes can be disregarded. Neither of those should however prove problematic in my view if the principle of the comparison is clear.

126Subject therefore to a final determination by the Italian courts of the substantive similarity between the added value on which IRAP is based and that on which VAT is based, I am of the view that a national tax having the features described by the referring court shares with VAT the essential characteristic of being imposed on the value added to supplies at each stage, with a deduction mechanism in respect of previous stages.

5. Conclusion on the assessment of a tax such as IRAP in the light of Article 33(1) of the Sixth Directive

127In the light of the above considerations, I am in broad agreement with Advocate General Jacobs’s conclusion as to the incompatibility with Article 33(1) of the Sixth Directive of a tax meeting the description of IRAP given in the order for reference. Of the two approaches I have endeavoured to present, his favoured the broader, and so does mine. It appears to me to be of particular significance in that regard that the broader approach is consistent with the judgment in Dansk Denkavit, decided by a plenary formation of the Court, whereas other judgments which may on some aspects appear to favour a narrower approach have been given by chambers.

128Consequently, I am of the opinion that a tax having the features of IRAP as described in the order for reference possesses the four essential characteristics of VAT and therefore falls within the scope of the prohibition, in Article 33(1) of the Sixth Directive, of other national taxes which can be characterised as turnover taxes, provided that, for a representative sample of businesses subject to both taxes, the ratio between the amounts paid in VAT and the amounts paid in the disputed tax is substantially constant.

129That condition must be assessed by the national court, having regard to the detailed characteristics of the tax in issue.

II – Temporal limitation of the effects of a judgment given by way of preliminary ruling

A – General considerations

130The last of the three questions posed by the Court before the second hearing was prompted by Advocate General Jacobs’s Opinion and is that which has attracted the greatest response from the Member States. It concerns the circumstances and manner in which the effects of a preliminary ruling delivered by the Court may be subjected to a temporal limitation.

131In limiting the temporal effect of a judgment a balance must always be sought between, on the one hand, the principle of correct and consistent interpretation of the law and, on the other hand, the principle of certainty in legal relationships conducted in good faith, even on the basis of an erroneous interpretation.

1. Validity of Community measures and temporal effect

132The Court’s practice has its roots in the second paragraph of Article 231 EC, which provides, with regard to actions for the annulment of a Community measure:

‘If the action is well founded, the Court of Justice shall declare the act concerned to be void.

In the case of a regulation, however, the Court of Justice shall, if it considers this necessary, state which of the effects of the regulation which it has declared void shall be considered as definitive.’

133On the direct basis of that provision, the Court has adopted essentially two types of approach, by either declaring the effects of the contested measure to be definitive, (76) or by maintaining those effects until a new, valid measure has been adopted – sometimes specifying that this must be within a reasonable period. (77)

134But the Court may also review the validity of a Community measure in response to a request for a preliminary ruling. Essentially in order to maintain consistency between the two situations, it has therefore applied the second paragraph of Article 231 EC by analogy in appropriate cases of that sort. Here, it has taken various approaches. In some cases, it has specified that the finding of invalidity has no retroactive effect whatever. (78) In others, it has stated that the effect is in general not retroactive but has allowed retroactive effect for those who have before the date of the judgment brought proceedings based on the invalidity. (79) In one case it has maintained the effects of invalid rules until new rules were adopted, (80) and in one very specific set of circumstances, when a provision was found to be invalid not for what it contained but for what it omitted, the Court stated simply that it was for the institutions concerned to adopt the measures necessary to correct the incompatibility. (81) Indeed, the choice of approach has in all instances been determined by the specific circumstances of the case.

2. Interpretation of Community law and temporal effect

135The Court has also in certain cases (82) imposed a temporal limitation on the effects of a preliminary ruling on the interpretation of a provision of Community law.

136Most of those cases fall into two broad categories: discriminatory failure to accord a pecuniary benefit, and imposition of a national tax contrary to Community law. Both categories may involve very large amounts of money wrongly withheld or levied, payment or reimbursement of which might cause serious difficulties for the finances of the Member State concerned. (83)

a) Effect ex tunc

137In such cases, after reaching an interpretation as a result of which the national conduct in question must be considered unlawful, the Court has systematically recalled that its rulings on interpretation define the meaning and scope of a Community rule as it ought to have been understood and applied from its entry into force.

b) Effect ex nunc

138Exceptionally, where the Member State had good grounds for believing that its conduct was compatible with Community law and there was a risk of serious economic repercussions, the Court has gone on to decide that its interpretation may not be relied upon to call in question situations established in good faith in the past: the interpretation takes effect from the date of the judgment itself. (84)

c) Exceptions to limitation of temporal effect

139To date, the Court has excluded from any temporal limitation claims relying on the interpretation given but raised prior to the date of its judgment. (85)

d) The proposal in Meilicke

140In Meilicke, (86) a case currently before the Court, Advocate General Tizzano has, in his Opinion of 10 November 2005, proposed a different approach from that hitherto followed by the Court.

141He concluded first that a German rule on the taxation of dividends was contrary to Community law ­– as was clear from the Court’s earlier judgment in Verkooijen (87) concerning a comparable rule of Netherlands law – but that the criteria for limiting the temporal effect of the future judgment were satisfied.

142He then considered (88) what form the limitation should take, examining a broader range of possibilities than the Court has hitherto made use of. His conclusion was that the ruling should have effect from the date of the judgment in Verkooijen, when the correct interpretation of Community law had become clear. (89) There should none the less be an exception from that limitation for claims raised before that date. Moreover, it would be unjust to refuse all claims raised after the ruling in Verkooijen, although the publicity surrounding the Meilicke case had led to so many claims that an exception for all of them might well fail to prevent the risk of serious economic repercussions.

143He consequently proposed that the exception should apply to all claims raised prior to the date on which notice of the order for reference in Meilicke was published in the Official Journal of the European Union, when it could be supposed that the possibility of a refund attracted the attention even of less diligent claimants.

e) Effect from a future date

144In order to complete the range of possibilities that may be envisaged, it may be helpful to examine another option available in the (constitutional) law of some Member States (90) in situations resembling that of the present case, (91) namely that of setting a future date from which the judgment may be relied on.

145In those systems, the aim appears to be above all to avoid situations in which no law would be worse than a bad law (including for example those in which the State would no longer be able to collect certain revenue or make certain payments) and to allow the legislature sufficient time to enact a measure which meets the requirements of the higher norm. In many cases, the court’s competence to fix a future date is limited by law to a specific maximum period. Within that period, the choice may be determined by the court’s assessment of a reasonable time for enacting new legislation, or by the periodicity of the legislation involved (in the case, for example, of tax legislation). (92)

3. Specific nature of preliminary rulings on interpretation of Community law entailing possible invalidity of national measures

146Before going further, it may be helpful to draw attention to specific features of a preliminary ruling of this Court interpreting Community law in such a way as to entail the invalidity of a national measure, which may condition the options available to the Court when deciding to limit the temporal effects of its ruling.

147The Court does not have jurisdiction to rule on the compatibility of a national measure with Community law, but only to interpret the latter in such a way as to enable the national court to determine such compatibility. (93)

148In the present case the Court may of course interpret the Sixth Directive in such a way that the referring court will find that IRAP is not compatible with Community law. That is however very different from a declaration that the national tax in issue is itself invalid, a declaration which can only be made by the competent national court where appropriate, with effect from a date determined by that court or by operation of national law, and contrasts with the situation in a preliminary reference on the validity of a Community measure, which the Court can, in effect, annul directly.

149The date from which the Court’s ruling takes effect will be relevant when determining whether a litigant may or may not rely in a national court on the incompatibility of the national measure with Community law which is apparent as a result of the ruling, in respect of a time at which that measure was applied. It will not however be the only relevant factor, since national procedural rules may limit the extent of a claim in other ways.

B – Limitation of temporal effect in the present case

150Even if the general considerations which I have set out above may be of assistance to the Court, any decision to limit the temporal effects of one of its judgments must be taken on a case-by-case basis, in the light of each set of circumstances.

151Three questions must therefore be asked in the present case: Are there grounds for limiting the temporal effect of the judgment? If so, from what date should it be possible to rely on the ruling? And should any exception be made in favour of claims raised before a certain date?

152In what follows I shall assume, in order to avoid constant repetition of the necessary proviso, that the Court will provide an interpretation as a result of which IRAP will prove incompatible with Community law.

1. Grounds for a limitation of temporal effect

153Two essential criteria must be met, namely that those concerned should have acted in good faith and that there should be a risk of serious difficulties in the absence of a limitation. (94) Advocate General Jacobs considered that both criteria were met in the present case.

154All the Member States which have commented on this aspect agree that the criteria are met here. Many of them have also submitted that the Court should assess those criteria more generously than it sometimes has in the past, referring, inter alia, to paragraph 42 of Advocate General Tizzano’s Opinion in Meilicke. The Commission also agrees that the criteria are met, and Banca Popolare does not object in principle to the fixing of a temporal limitation.

155I concur fully with Advocate General Jacobs’s analysis on this point. On the undisputed evidence put to the Court, only a stricter approach to temporal limitation than that which has been followed in the past would justify a decision that there should be no temporal limitation in the present case. No argument has been made for a change of that kind, nor does there appear to be any reason in the circumstances of the present case to undertake a review of past practice. That being so, there is no need to consider whether a more generous approach to the question of temporal limitation may be called for in any future cases.

156I would however stress that the circumstances of this case are very particular. In 1997 the Italian Government received from the Commission what could only be interpreted as an explicit assurance that IRAP would be compatible with Community law. (95) The amount of tax which may be claimed back has been stated by the Italian Government to be some EUR 120 billion, and that figure has not been contested. (96) The proceedings have been protracted, both at the national level and before the Court. (97) And in the latter context, the Grand Chamber has taken the rare step of reopening the oral procedure and holding a second hearing, a step which has attracted even more attention.

2. Choice of date for temporal limitation

157In the past, where the Court has specified a temporal limitation subject to an exception for claims raised before a certain date, it has always used the same date as the basis for both the limitation and the exception: the limitation does not apply to claims already raised before the date from which the judgment may be relied on (in practice, hitherto always the date of its delivery). However, as Advocate General Tizzano has proposed in his Opinion in Meilicke, two different dates may be more appropriate in some circumstances. I shall deal in this section only with the principal date, that of the temporal limitation itself.

158Clearly, if the temporal effect of the judgment is to be limited, it must be either from the date of delivery of the judgment itself or from some other specified date before or after that delivery.

159It does not seem to me possible in the present case to identify any specific date in the past from which the judgment should take effect. In the circumstances of Meilicke, Advocate General Tizzano pointed out that the scope of the relevant provisions of Community law had become clear from the delivery of the judgment in Verkooijen. There does not appear to be any equivalent date here. A parallel with Dansk Denkavit is of course possible, but aspects of the case-law subsequent to that judgment, together with the conflicting views expressed in the present case, which have given rise to a second hearing, make it more difficult to regard Dansk Denkavit as a statement of the law equivalent to that in Verkooijen. The question whether a national tax such as IRAP, as described by the referring court, is incompatible with the Sixth Directive will not be authoritatively answered until the Court has delivered judgment in this case – which may perhaps be the ‘Verkooijen’ for future cases.

160The date of that delivery might therefore appear to be an appropriate date and, if it were chosen, would follow the pattern of this Court’s consistent precedent.

161Nevertheless, having regard to the specific circumstances of this case, it would also be possible to take a different approach and fix a future date, inspired by the practice of those national courts which, in similar circumstances, allow the legislature a reasonable period within which to enact a new, compatible measure, and by the Court’s own practice, with regard to the validity of Community measures, in the case-law cited in footnotes 77 and 80.

162Such an approach would in my view be more appropriate here. Realistically, the Italian authorities cannot be expected to change overnight their whole system of financing regional expenditure, nor can they be expected to have changed it in anticipation of the Court’s judgment. If all taxpayers could rely immediately on that judgment in order to reclaim sums levied in IRAP as from the date of its delivery, that would be tantamount to abolishing the tax, and the means of financing the Italian regions, with immediate effect.

163On the other hand, a date should not be set too far in the future. If it would be unreasonable to expect the immediate replacement of one tax by another, it is not unreasonable to suppose that the Italian authorities have by now made contingency plans for such replacement. They learned of the Commission’s view that IRAP was incompatible in March 2004, when that institution lodged its observations to the Court, although those observations were not public, and they learned of Advocate General Jacobs’s view that it was incompatible in March 2005, when he delivered his Opinion publicly in open court. Indeed, it seems that the gradual elimination of IRAP has been planned in the legislation since April 2003, and may be presumed to have progressed since then. (98)

164In order to ensure that IRAP is replaced by a financing mechanism compatible with Community law in as smooth a manner and as short a time as possible, the appropriate date would appear to me to be the end of the tax period current when the Court’s judgment is delivered. (99) Since the judgment will presumably be delivered this year and the tax period for IRAP appears to be a calendar year, that would mean that the ruling could not be relied upon to bring proceedings concerning IRAP levied in respect of any period of assessment ending on or before 31 December 2006 but that, in the event of delay in reforming the system, any sums levied in respect of any subsequent period could be reclaimed.

3. Exceptions to the date for temporal limitation

165The limitation which I propose seeks to take account of the Member State’s legitimate interests in a specific set of circumstances. It runs however counter to the principle that individuals are entitled to obtain repayment of national charges levied in breach of Community provisions. (100) Care should therefore be taken to ensure that the encroachment on that principle is not excessive, again having regard to the specific circumstances of the case.

166Commonly, in the practice both of this Court and of the courts of a number of Member States, an exception from a limitation of the temporal effect of a judgment is made in favour of claims raised before a certain date. It may cover all those raised before the date of the judgment finding the incompatibility (as has been the usual practice of this Court), or only some of them; it may also be possible to choose a different cut-off date (as proposed by Advocate General Tizzano in Meilicke).

167The notable difficulty in the present case is the apparently vast number of claims that have been raised for repayment of IRAP on the ground of its presumed incompatibility with Community law. Since these proceedings have attracted a great deal of attention over a relatively long period, it seems plausible that many of those claims, particularly the more recent among them, are of a speculative nature, introduced at no great effort or expense with a view to profiting from the forthcoming judgment. An exception in favour of such claims not only seems less justified because of their nature, but would also be likely, because of their number, to undermine seriously the effect sought by the limitation.

168If an exception is to be made for claims brought before a particular date and if that date is to be chosen in the light of the considerations outlined in the previous paragraph, it should meet the following conditions: it should be as objective as possible; it should be likely to distinguish as far as possible between earlier claims brought in the belief that they were well founded, but none the less at some risk in view of the uncertainty of their outcome, and those brought at a later date in the light of a perceived probability of success; and it should be such as to dispose substantially of the problem posed by the extremely large number of claims.

169Following Advocate General Tizzano’s suggestion in Meilicke, Banca Popolare, the Italian Government and the Commission, together with several other Member States, have all proposed the date of 21 January 2004, when notice of the Court’s receipt of the order for reference in the present case was published in the Official Journal. (101)

170It seems to me however that if reasoning comparable to that underlying Advocate General Tizzano’s proposal is applied to the present case, it should lead to a different date. His ground for proposing the date of the publication in the Official Journal in Meilicke was that it could reasonably be supposed to be the date on which the attention even of less diligent claimants was attracted to the possibility of a refund. (102) The interpretation of Community law had been clear since the judgment in Verkooijen, but the likelihood of its application to the German tax rule did not become real until a reference was made to this Court. Once potential claimants were informed of that reference, it seemed plausible that proceedings could be brought with a reasonable chance of success.

171I do not think that publication in the Official Journal provided equivalent information in the present case, since the ‘Verkooijen element’ is missing. (103) The request for a preliminary ruling raised the question of the compatibility of IRAP with Community law, but the result of the reference was by no means as apparent as in Meilicke, where the relevant provision of Community law had already been interpreted by the Court in parallel circumstances. Here, as I have shown, the case-law has not been entirely unequivocal in its approach to compatibility with the Sixth Directive.

172However, it appears uncontested that there is now a widespread perception – or at least hope – in Italy that the Court is likely to deliver a judgment as a result of which IRAP will be found incompatible with Community law. The identification of a date from which that perception became concrete is bound to be to some extent arbitrary, but in my view the delivery of Advocate General Jacobs’s Opinion on 17 March 2005 is the least arbitrary and most objective date in that regard. (104) It was from that point that a real likelihood emerged that the Court would give such a ruling; by contrast, if his Opinion had reached a different conclusion, the likelihood would have been considerably less.

173I am therefore of the opinion that an exception to the temporal limitation of the judgment, in favour of those who brought proceedings before 17 March 2005, is likely to distinguish between earlier claims and those brought only when the probability of success was perceived to be stronger. And although an earlier date is proposed by the Italian Government, it may still be presumed that the risk of undermining the effects of the limitation will not be unduly exacerbated.

174There remains however a concern raised in particular by the Netherlands Government.

175As Advocate General Jacobs noted at point 85 of his Opinion, any shortfall in revenue caused by reimbursement of IRAP will have to be made up by other taxation. The Netherlands Government is concerned that injustice might ensue if all taxpayers (including new market entrants who had not been subject to IRAP) must make good the shortfall while only some of them benefit from the reimbursement. Moreover, it reasons, if the burden of the tax has been passed on to consumers (as must in general be the case if IRAP is caught by the prohibition in the Sixth Directive), the benefit of the reimbursement will be multiplied.

176That reasoning might appear to suggest that in fact no exceptions should be made to the limitation of the effects of the ruling. I accept that there may be circumstances in which that is the case (and that in such circumstances it may be inappropriate to make an exception even for the claimants in the proceedings giving rise to the reference, since the identity of the case in which a reference is made is unrelated to any diligence on the part of the claimant in bringing the proceedings), but I do not think that they apply here.

177The problem of unequal treatment as between taxpayers will not be significant if the number of claimants benefiting from the exception is sufficiently circumscribed – which seems likely to be the case if a date even later than that proposed by the Italian Government is adopted. And the problem of unjust enrichment through reimbursement of a tax the burden of which has been passed on has been adequately dealt with in the Court’s case-law, most recently in Weber’s Wine World, (105) a sequel to EKW.

C – Consequences for other Member States

178I turn finally to consider briefly the wider consequences of the ruling (which I still presume for present purposes to entail the incompatibility of a tax fitting the description of IRAP given by the referring court) and of any limitation of its temporal effect.

179If a temporal limitation is imposed on the effect of such a ruling, it will be in the interest of the Member State concerned, in order to avoid exceptional disruption. If there is an exception to the limitation it will be granted, by contrast, in the interests of those who, within the Member State, have sought to assert claims in reliance on Community law.

180Yet a ruling on interpretation has general effect. If the Court rules that a tax having the characteristics of IRAP as described by the referring court is incompatible with the Sixth Directive, that will be true for IRAP and equally true for any other tax having those characteristics in any other Member State.

181However, any temporal limitation and any exception thereto decided upon by the Court will be based on an assessment of the situation – existence of good faith on the part of the State, risk of serious disruption for the State and need for effective judicial protection of diligent claimants – in Italy, and that assessment might be quite different with regard to another Member State which also applied a tax having the same characteristics.

182That consideration implies that any limitation should be not only temporal but also, in effect, spatial – a point of some relevance in the present case since it appears from several of the numerous articles which have already appeared in legal and tax journals concerning this case that one or more Member States other than Italy may apply taxes which, at least in the opinion of some authors, share certain characteristics with IRAP.

183It is not of course possible for the Court to decide in the present case whether a limitation of temporal effect would be appropriate with regard to such other taxes or, if appropriate, what date should apply and what exceptions, if any, should be made. Yet the Court has consistently held that a limitation of temporal effect may be allowed only in the actual judgment ruling upon the interpretation sought, (106) and the decision is particular to the factual context of the preliminary reference.

184Consequently, in accordance with the basic principle governing the effects of all of the Court’s preliminary rulings on interpretation, the judgment will apply ex tunc in regard to any other tax having the relevant characteristics in another Member State.

185The difficulties which might arise as a result are similar to those outlined by Advocate General Tizzano in his Opinion in Meilicke, in particular at point 47 et seq. A scenario such as the following might be imagined.

186If taxpayers challenge a national tax in reliance on the judgment in the present case, it will be open to the national court to refer a question for a preliminary ruling; indeed, there is no certainty that another national tax will possess the characteristics defined in this case so identically that all doubt as to compatibility is excluded. In the context of the proceedings on that reference, it will be open to the Member State concerned to seek a limitation of the temporal effects of the ruling to be given. If the circumstances are appropriate, the Court could decide on a limitation based on the date of the judgment in the present case – in a manner comparable to Advocate General Tizzano’s proposal in Meilicke that the effects should be limited to the date of the judgment in Verkooijen – and on any exceptions that might be called for to the effects of the limitation.

III – Conclusion

187In the light of all the foregoing considerations, I am of the opinion that the Court should rule as follows in response to the question raised by the Commissione Tributaria Provinciale di Cremona:

(1) a tax having the features of IRAP as described in the order for reference, that is to say which

– is levied on all natural and legal persons who regularly carry on an activity with the object of producing or trading in goods or providing services,

– is imposed on the difference between the proceeds and costs of the taxable activity,

– is charged in respect of each stage in the production and distribution process corresponding to a supply or set of supplies of goods or services made by a taxable person, and

– imposes a burden at each of those stages which is globally proportional to the price at which the goods or services are supplied,

falls within the scope of the prohibition, in Article 33(1) of the Sixth Council Directive 77/388/EEC, of other national taxes which can be characterised as turnover taxes, provided that, for a representative sample of businesses subject to both taxes, the ratio between the amounts paid in VAT and the amounts paid in the disputed tax is substantially constant.

That condition must be assessed by the national court, having regard to the detailed characteristics of the tax in issue.

(2) The prohibition in that article may not be relied upon in order to claim reimbursement of IRAP levied in respect of any period of assessment prior to the Court’s judgment, or in respect of the period during which that judgment is delivered, except by persons who initiated legal proceedings or raised an equivalent administrative claim before 17 March 2005, the date on which Advocate General Jacobs delivered his Opinion in the present case. Such claimants may rely on it to the extent that their claims are not otherwise barred by national procedural rules which observe the principles of equivalence and effectiveness.

Notes

(1) Original language: English.

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

(3) I refer to that Opinion for the legislative, factual and procedural background to the case, which I shall reiterate or complete only when appropriate.

(4) I have simplified the wording of the questions as they appear in the order reopening the oral procedure.

(5) Point 27 of the Opinion. See also, for example, Case 252/86 Bergandi [1988] ECR 1343, paragraph 13; Joined Cases C-370/95 to C-372/95 Careda and Others [1997] ECR I-3721, paragraphs 25 and 26.

(6) Of Legislative Decree No 446 of 15 December 1997 introducing IRAP, published in GURI No 298 of 23 December 1997.

(7) For ‘valore aggiunto prodotto’, namely ‘added value produced’ in Italian.

(8) Opinion of Advocate General Jacobs, points 36 and 67.

(9) Since that provision is couched in permissive terms (‘… this Directive shall not prevent a Member State from maintaining or introducing … any taxes, duties or charges which cannot be characterised as turnover taxes …’) it might be thought preferable to view the prohibition as flowing rather from the directive as a whole, with its rather detailed harmonisation requirements, and from the second paragraph of Article 10 EC, which prohibits any measure which could jeopardise the attainment of the objectives of the Treaty, with Article 33(1) of the directive clarifying the prohibition by specifying that it concerns only levies which can be characterised as turnover taxes. However, the difference of viewpoint is of no practical consequence, and I shall assume, with the consistent case-law, that the prohibition resides in Article 33(1).

(10) See points 2 and 8 above, and 22 below.

(11) A number of other cases are of lesser importance: Case 73/85 Kerrutt [1986] ECR 2219 concerned a form of stamp duty explicitly permitted by Article 33 of the Sixth Directive; in Joined Cases 317/86, 48/87, 49/87, 285/87 and 363/87 to 367/87 Lambert and Others [1989] ECR 787 (summary publication), the Court repeated the same ruling as in Bergandi (cited in footnote 5), with regard to the same tax; the tax in issue in Dansk Denkavit (cited in footnote 16) was also subsequently the subject of infringement proceedings in Case C‑234/91 Commission v Denmark [1993] ECR I-6273, in which the Court followed the same reasoning; and in Case C-28/96 Fricarnes [1997] ECR I-4939, paragraph 34 et seq., the Court followed the same reasoning as in UCAL (cited in footnote 20), decided on the same day, with regard to a similar levy.

(12) Case 295/84 [1985] ECR 3759, especially paragraphs 14 to 17.

(13) Cited above in footnote 5, paragraphs 6 to 20.

(14) Joined Cases 93/88 and 94/88 [1989] ECR 2671, paragraphs 6 to 21.

(15) Case C-109/90 [1991] ECR I-1385, especially paragraph 14.

(16) Case C-200/90 [1992] ECR I-2217.

(17) Case C-347/90 [1992] ECR I-2947.

(18) Case C-208/91 [1992] ECR I-6709.

(19) Cited above in footnote 5.

(20) Case C-347/95 [1997] ECR I-4911, paragraph 30 et seq.

(21) Case C-130/96 [1997] ECR I-5053.

(22) Case C-318/96 [1998] ECR I-785.

(23) Joined Cases C-338/97, C-344/97 and C-390/97 [1999] ECR I-3319.

(24) Case C-437/97 [2000] ECR I-1157, especially paragraphs 19 to 25.

(25) Case C-101/00 [2002] ECR I-7487, especially paragraphs 91 to 107.

(26) Case C-308/01 [2004] ECR I-4777, especially paragraphs 23 to 37.

(27) Rousseau Wilmot, paragraph 13; Wisselink, paragraph 8; see also the preamble to First Council Directive 67/227/EEC of 11 April 1967 on the harmonisation of legislation of Member States concerning turnover taxes (OJ, English Special Edition 1967, p. 14, hereinafter ‘the First Directive’), eighth recital.

(28) Bergandi, paragraph 7; SPAR, paragraph 17; Pelzl, paragraph 14; see also the preamble to the First Directive, first and second recitals.

(29) Bergandi, paragraph 9; SPAR, paragraph 19; Pelzl, paragraph 18.

(30) Rousseau Wilmot, paragraph 16; Bergandi, paragraph 14; Wisselink, paragraph 17; Dansk Denkavit, paragraph 11; Bozzi, paragraph 9; Beaulande, paragraph 12; Careda, paragraphs 13 and 24; UCAL; paragraph 33; Solisnor, paragraph 13; EKW, paragraph 20.

(31) Paragraph 19.

(32) Rousseau Wilmot, paragraph 15; Bergandi, paragraphs 8 and 15; Wisselink, paragraph 18; Giant, paragraph 12; SPAR, paragraph 23; Pelzl, paragraph 16.

(33) That summary is based on Pelzl, paragraphs 20 and 21. The substance of the characteristics has remained constant, although there are slight differences in the precise formulation: see Dansk Denkavit, paragraph 11; Bozzi, paragraph 12; Beaulande, paragraph 14; Careda, paragraph 14; UCAL, paragraph 34; Solisnor, paragraph 14; EKW, paragraph 22; Tulliasiamies, paragraph 99; and GIL Insurance, paragraph 33.

(34) See Bergandi, paragraph 14; Giant, paragraph 11; SPAR, paragraph 22; Pelzl, paragraph 20.

(35) See point 22 above and the case-law cited there.

(36) Dansk Denkavit, paragraph 14; Careda, paragraph 14; Solisnor, paragraph 14; SPAR, paragraph 22; EKW, paragraph 21; GIL Insurance, paragraph 32.

(37) Paragraph 15 and ruling. It should be noted however that not all of those features were considered relevant in the Court’s analysis; see point 28 and footnotes 50 and 52 to 54 below.

(38) At paragraph 15.

(39) At paragraphs 18 and 19.

(40) At paragraphs 24 and 25.

(41) Rousseau Wilmot, paragraph 16; Giant, paragraph 14; Pelzl, paragraphs 24 and 25.

(42) Bergandi, paragraph 16 et seq.; Wisselink, paragraph 20.

(43) Beaulande, paragraph 18; UCAL, paragraph 36; GIL Insurance, paragraph 36.

(44) Wisselink, paragraph 20; Bozzi, paragraph 16; Beaulande, paragraph 17; UCAL, paragraph 36; Pelzl, paragraph 23.

(45) Bozzi, paragraph 15; UCAL, paragraph 36; Tulliasiamies, paragraph 102.

(46) Bozzi, paragraph 16; Beaulande, paragraph 17; UCAL, paragraph 36; SPAR, paragraph 27; Tulliasiamies, paragraph 103; GIL Insurance, paragraph 36.

(47) At paragraphs 11 and 12.

(48) SPAR, paragraphs 25 and 26.

(49) Wisselink, paragraph 10; Careda, paragraph 17; Tulliasiamies, paragraph 98.

(50) Giant, paragraph 9; Dansk Denkavit, paragraph 15; SPAR, paragraph 21.

(51) Careda, paragraph 18.

(52) Dansk Denkavit, paragraph 15; Careda, paragraphs 23 and 25.

(53) Dansk Denkavit, paragraph 15.

(54) Ibid.

(55) Finland, France, Hungary, Italy and Spain.

(56) See Article 12(3)(a) of the Sixth Directive. The Commission has on several occasions proposed a maximum rate but the proposal has not been accepted, although a de facto maximum of 25% applies, perhaps for practical reasons related to the increased likelihood of fraud when tax rates rise.

(57) See also the Opinion of Advocate General Tesauro in Dansk Denkavit (point 8, sixth paragraph, at p. I-2235).

(58) At points 24 and 25 of his Opinion.

(59) Although it appears from paragraphs 11 and 12 of Wisselink that this conclusion is not absolute, and even a single-stage tax may in some cases prevent the proper working of the common VAT system.

(60) There is however a suggestion in Bergandi, at paragraph 17, that a fixed-rate tax based on an objective evaluation of foreseeable receipts might be caught if passed on to the consumer.

(61) In particular in Article 13(B)(d).

(62) Reports have been commissioned by the Commission on the application of VAT to financial services, including bank transactions; a 1996 study by Ernst & Young is available on the Commission’s website.

(63) Compare points 39, 40 and 53 of Advocate General Jacobs’s Opinion in the present case.

(64) See the case-law cited in point 16 above. The Court has of course taken account of the possibility of passing on the burden of the tax, which is a feature of indirect taxation, but only for the purposes of comparison with VAT, not in order to establish a categorisation as direct or indirect.

(65) Eighteenth Council Directive 89/465/EEC of 18 July 1989 on the harmonisation of the laws of the Member States relating to turnover taxes – Abolition of certain derogations provided for in Article 28(3) of the Sixth Directive (OJ 1989 L 226, p. 21).

(66) Thirteenth Council Directive 86/560/EEC of 17 November 1986 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 Community territory (OJ 1986 L 326, p. 40); although the VAT directives are numbered sequentially, not all those in the sequence have been adopted in fact (or in sequential order).

(67) See point 27 and footnote 41 above. It may be noted that, unlike Dansk Denkavit, all of those judgments were delivered by a chamber of the Court.

(68) The French and Hungarian Governments have made similar submissions.

(69) See point 105 et seq. below.

(70) See in particular Pelzl, paragraph 27; see also, with regard to the compatibility of a locally-levied tax with the prohibition of charges having an effect equivalent to that of a customs duty on exports, Case C-72/03 Carbonati [2004] ECR I-8027, paragraph 27 et seq.

(71) See paragraph 27 above, footnotes 41 and 45.

(72) At paragraph 18 of the judgment.

(73) With the perhaps unfortunate and minor exception of exempt transactions, if they form inputs for the purpose of further onward supplies.

(74) The possible exceptions are Rousseau Wilmot and SPAR, in neither of which the Court explicitly referred to the four ‘essential characteristics’.

(75) See point 96 above.

(76) In a number of judgments from Case 34/86 Council v Parliament [1986] ECR 2155, paragraph 48, to Case C-445/00 Austria v Council [2003] ECR 8549, paragraphs 103 to 106.

(77) In a number of judgments from Case 81/72 Commission v Council [1973] ECR 575 to, most recently, Case C-178/03 Commission v Parliament and Council [2006] ECR I-0000.

(78) See in particular the first three cases in which the Court used this possibility: Case 4/79 Providence Agricole de la Champagne [1980] ECR 2823, paragraphs 42 to 46, Case 109/79 Maïseries de Beauce [1980] ECR 2883, paragraphs 42 to 46, and Case 145/79 Roquette Frères [1980] ECR 2917, paragraphs 50 to 52.

(79) See for example Case 41/84 Pinna [1986] ECR 1, paragraphs 26 to 30; Case C-228/92 Roquette Frères [1994] ECR I-1445, paragraphs 17 to 30.

(80) Case 300/86 Van Landschoot [1988] ECR 3443, paragraphs 22 to 24.

(81) Joined Cases 117/76 and 16/77 Ruckdeschel [1977] ECR 1753, and Joined Cases 124/76 and 20/77 Moulins Pont-à-Mousson [1977] ECR 1795.

(82) From, first and most famously, Case 43/75 Defrenne II [1976] ECR 455, paragraphs 69 to 75, to, most recently for the time being, EKW, cited in footnote 24, paragraphs 57 to 60.

(83) For example Case C-262/88 Barber [1990] ECR I-1889, which also illustrates the fact that serious difficulties are not sufficient to justify a temporal limitation: after noting in paragraphs 40 and 41 the very large number of workers who might be entitled to claim equal treatment on the basis of the Treaty interpretation given, the Court went on in paragraphs 42 and 43 to verify that Member States had been reasonably entitled to consider that another interpretation was possible.

(84) At a national level, the normal temporal effects of a ruling of incompatibility are also either ex tunc (the general rule, for example, in the courts of Belgium, France, Germany, Ireland, Italy, Spain, Poland and Portugal) or ex nunc (the general rule, for example, in some, if not all, courts of Austria, the Czech Republic, Greece, Hungary, and Slovenia; in the case of at least Greece and Slovenia, the judgments of some other courts normally have ex tunc effects), with an apparent preponderance of ex tunc.

(85) At a national level, a similar practice may be followed, whether the basic effect is ex tunc or ex nunc. Generally, in the interests of legal certainty, ex tunc effects may be relied upon only in proceedings which have been or may still be brought within the relevant procedural time-limits, although in some jurisdictions the effect may be formally restricted to the instant case because the court has no competence to annul a legislative measure, only to disapply it (the general rule, for example, in the courts of Denmark, Finland, Luxembourg, Sweden and the United Kingdom). Where ex nunc effects are concerned, an exception is commonly made for proceedings which at the date of the judgment have been or may still be brought within the relevant procedural time-limits; for those which at that date have already been brought; or for those which actually gave rise to the judgment.

(86) Case C-292/04.

(87) Case C-35/98 [2000] ECR I-4071.

(88) At point 43 et seq.

(89) Cases in which national courts will annul a legislative measure with effect from a specific date in the past appear to be rare.

(90) They include Austria, Belgium, the Czech Republic, Germany, Hungary, Poland, Slovenia and Spain. In other systems, there are fundamental objections to this approach, also described as ‘prospective’. As Lord Nicholls of Birkenhead explained recently in National Westminster Bank v Spectrum Plus [2005] UKHL 41: ‘The essence of the principled argument against prospective overruling is that in this country prospective overruling is outside the constitutional limits of the judicial function. It would amount to the judicial usurpation of the legislative function.’

(91) Namely, where an existing legislative rule of general application is declared incompatible with a higher norm; it will rarely if ever be possible to find a wholly similar situation, in which the court finding the incompatibility refers the case back to another court for a ruling on validity.

(92) The period between the date of the judgment and the date from which it may be relied on is sometimes referred to as ‘transitional’. It should be noted however that this is a misnomer; the contested national measure is invalid and must be replaced with effect from a specific date.

(93) See, for example, Case C-265/01 Pansard [2003] ECR I-683, paragraph 18; see also the Court’s information note on references from national courts for a preliminary ruling (OJ 2005 C 143, p. 1), point 6.

(94) See also, most recently, Case C-402/03 Skov [2006] ECR I-0000, paragraph 51.

(95) The fact that here the grounds for the Italian Government’s belief lie in the Commission’s assurance is of course not decisive; good faith could also be based on misleadingly drafted legislation, or indeed obscure case-law.

(96) This compares with a figure of between EUR 5 and 13 billion in Germany in the Meilicke case; see point 35 of the Opinion.

(97) Banca Popolare originally brought its action in 2001 and the reference was made in late 2003.

(98) See Legge delega per la riforma del sistema fiscale statale (L. 7/4/03, n. 80) in GURI No 91 of 18 April 2003, in particular Articles 8 and 10(4), (5) and (7) thereof.

(99) There are precedents in (at least) the German Bundesverfassungsgericht and the Belgian Cour d’Arbitrage for the choice of a future date corresponding to the end of a relevant current period, such as calendar year, tax year or academic year.

(100) See for example Case C-147/01 Weber’s Wine World [2003] ECR I-11365, paragraph 93 and the case-law cited there.

(101) OJ 2004 C 21, p. 16.

(102) See point 62 of the Opinion.

(103) See my remarks at point 159.

(104) The earlier statement of the Commission’s views, whether in its written observations, which are not made public, or even at the hearing, might also have been considered, but that cannot in my view be compared to the first public indication, in written, reasoned and generally available form, of the views of a Member of the Court.

(105) Cited in footnote 100, paragraphs 93 to 102.

(106) See EKW, paragraph 57, and the case-law cited there.