C-484/06 Koninklijke Ahold

Parties Grounds Operative part

In Case C‑484/06,

REFERENCE for a preliminary ruling under Article 234 EC by the Hoge Raad der Nederlanden (Netherlands), made by decision of 24 November 2006, received at the Court on 27 November 2006, in the proceedings

Fiscale eenheid Koninklijke Ahold NV

v

Staatssecretaris van Financiën,

THE COURT (Fourth Chamber),

composed of K. Lenaerts, President of Chamber, G. Arestis, R. Silva de Lapuerta, E. Juhász and T. von Danwitz (Rapporteur), Judges,

Advocate General: E. Sharpston,

Registrar: C. Strömholm, Administrator,

having regard to the written procedure and further to the hearing on 13 December 2007,

after considering the observations submitted on behalf of:

– the Fiscale eenheid Koninklijke Ahold NV, by G.C. Bulk, adviseur, and M. Hamer, advocaat,

– the Netherlands Government, by H.G. Sevenster and M. de Grave, acting as Agents,

– the Greek Government, by O. Patsopoulou, M. Tassopoulou and G. Skiani, acting as Agents,

– the Polish Government, by E. Ośniecka-Tamecka, acting as Agent,

– the United Kingdom Government, by V. Jackson, acting as Agent, and by I. Hutton, Barrister,

– the Commission of the European Communities, by D. Triantafyllou, A. Weimar and P. van Nuffel, acting as Agents,

after hearing the Opinion of the Advocate General at the sitting on 24 January 2008,

gives the following

Judgment

Grounds

1The reference for a preliminary ruling relates to the interpretation of Article 22(3)(b) and (5) and Article 11A of the Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment (OJ 1977 L 145, p. 1), as amended by Council Directive 91/680/EEC of 16 December 1991 (OJ 1991 L 376, p. 1, the ‘Sixth Directive’).

2This reference was made in proceedings brought by the Fiscale eenheid Koninklijke Ahold NV, a fiscal entity to which the company Albert Heijn BV belongs, against the Staatssecretaris van Financiën (Secretary of State for Finance, Netherlands) following the rejection by the Inspecteur van de Belastingdienst (Inspector of Taxes, the ‘Inspector’) of its complaint brought to obtain repayment of a sum of EUR 1 414 of value added tax (‘VAT’).

Legal context

Community legislation

3Article 2 of the First Council Directive 67/227/EEC of 11 April 1967 on the harmonisation of legislation of Member States concerning turnover taxes (OJ, English Special Edition 1967, p 14, the ‘First Directive’) provides:

‘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 or services, shall be chargeable after deduction of the amount of value added tax borne directly by the various cost components.

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

…’

4. Article 11A(1)(a) of the Sixth Directive provides:

‘The taxable amount shall be:

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

5. Article 22(3)(a) and (b), (4)(b) and (5) of the Sixth Directive, state:

‘3. (a) Every taxable person shall issue an invoice, or other document serving as invoice, in respect of goods and services which he has supplied or rendered to another taxable person or to a non-taxable legal person. … A taxable person shall keep a copy of every document issued.

…

(b) The invoice shall state clearly the price exclusive of tax and the corresponding tax at each rate as well as any exemptions.

…

4(a) …

(b) The return shall set out all the information needed to calculate the tax that has become chargeable and the deductions to be made including, where appropriate, and in so far as it seems necessary for the establishment of the basis of assessment, the total value of the transactions relative to such tax and deductions and the value of any exempt transactions.

…

5Every taxable person shall pay the net amount of the value added tax when submitting the regular return. Member States may, however, set a different date for the payment of that amount or may demand an interim payment.’

6Council Directive 2001/115/EC of 20 December 2001 amending Directive 77/388 with a view to simplifying, modernising and harmonising the conditions laid down for invoicing in respect of value added tax (OJ 2002 L 15, p. 24), which Member States had to bring into force with effect from 1 January 2004, amended Article 22(3)(b) of the Sixth Directive, entailing, inter alia, inclusion of a 10th indent worded as follows:

‘(b) Without prejudice to the specific arrangements laid down by this Directive, only the following details are required for VAT purposes on invoices issued under the first, second and third subparagraphs of point (a):

…

– the VAT amount payable, except where a specific arrangement is applied for which this Directive excludes such a detail,

– …’

National legislation

7Article 35 of the Law on turnover tax (Wet op de omzetbelasting) of 28 June 1968 (Stb. 1968, No 329), in the version applicable to the dispute in the main proceedings, is worded as follows:

‘1. In respect of all goods and services supplied to another trader or to a legal person, other than a trader, the trader shall issue a numbered and dated invoice which shall state clearly and unambiguously:

...

i. The remuneration.

j. The amount of the tax payable in respect of the supply of goods or services. No reference may be made to another amount of tax.

…’

The dispute in the main proceedings and the questions referred for a preliminary ruling

8The company Albert Heijn BV, belonging to the Fiscale eenheid Koninklijke Ahold NV, which constitutes a fiscal entity for the levying of the turnover tax, operates supermarkets in which it offers a standard range of foodstuffs or other products.

9At the material time, namely October 2003, the applicant in the main proceedings calculated and declared the VAT in respect of sales in its supermarkets, according to its usual practice, on the basis of the total amount, according to each till receipt (or ‘shopping basket’), paid by a customer buying various articles at the same time.

10Each of the amounts on those till receipts was rounded arithmetically to the nearest cent (EUR). The operation of arithmetic rounding means that amounts in which the third decimal place is equal to or exceeds five are rounded up to the nearest cent and amounts in which the third decimal place is less than five are rounded down to the nearest cent. This procedure was followed by the applicant in the main proceedings in all its branches.

11However, at two branches during the relevant period the applicant also employed another method, which consisted of calculating the amount of VAT payable, not per till receipt, but separately for each item sold to the customer, by rounding the amount thus calculated per item down to the nearest cent.

12The applicant in the main proceedings accordingly calculated that, for those two branches during the relevant period, the result of that method of rounding down per item was that it should have paid EUR 1 414 less than the amount stated on its VAT return and which it in fact paid in accordance with its usual practice of rounding per till receipt.

13The applicant in the main proceedings applied for repayment of the amount of EUR 1 414 of VAT which, in its opinion, it had wrongly paid for the two branches in question. When that application was rejected, the applicant brought a complaint before the Inspector with the claim that ‘rounding per basket’ was incorrect and that the amount of the tax calculated per item should, when necessary, be rounded down to the nearest amount.

14The Inspector rejected that complaint. The applicant in the main proceedings brought an action seeking annulment of that rejection before the Gerechtshof te Amsterdam (Regional Court of Appeal, Amsterdam). That court dismissed the action as unfounded by judgment of 16 August 2004. The applicant then brought an appeal against that judgment before the Hoge Raad der Nederlanden (Supreme Court of the Netherlands).

15In the order for reference, the Hoge Raad der Nederlanden states that, in the opinion of the Gerechtshof te Amsterdam, even when the result of using the arithmetic method is a rounding up to the nearest cent, that method is, on balance, more consistent with the principle that the tax must be strictly proportional to the price than a method which prescribes rounding down to the nearest cent.

16The referring court adds that, in calculating the VAT, it is permissible for each supply of goods or each provision of services to adopt either the procedure of arithmetic rounding of the tax or the method of rounding the total amount of a certain number of supplies or service provisions taken together, namely, in this case, per basket. According to that court, both those methods are laid down, as from 1 July 2004, in Article 5 a of the implementing decree of 1968 on turnover tax (Uitvoeringsbesluit omzetbelasting 1968).

17The questions arising from the main proceedings are whether it is a requirement of the First and Sixth Directives that the method of rounding down per item be permitted and, more particularly, whether the provisions of the first and second paragraphs of Article 2 of the First Directive and of Articles 11A(1)(a) and 22(3)(b), first paragraph, in the version applicable before 1 January 2004, and 22(5) of the Sixth Directive are founded on a method which necessitates the amount of VAT being calculated on each transaction, even if various transactions are referred to on one invoice and/or are included in one and the same VAT return.

18In those circumstances, the Hoge Raad der Nederlanden decided to stay proceedings and to refer the following questions to the Court for a preliminary ruling:

‘(1) Is the rounding of VAT amounts governed solely by national law, or – particularly in view of the provisions [of Article 22(3)(b), tenth indent, and (5), and Article 11A, of the Sixth Directive] – is it a matter for Community law?

(2) If the latter is the case, does it follow from the aforementioned provisions of the Directives that the Member States are required to permit rounding down per article, even if different supplies are included in one invoice and/or one tax return?’

Application for reopening of the oral procedure

19By application lodged at the Registry of the Court on 10 March 2008, the applicant in the main proceedings applied for the reopening of the oral procedure on the ground that the case may not be dealt with on the basis of an argument which has not been debated between the parties, in so far as the Opinion of the Advocate General is based on a factual misconception.

20It must be borne in mind that the Court may of its own motion, on a proposal from the Advocate General, or at the request of the parties, reopen the oral procedure in accordance with Article 61 of its Rules of Procedure, if it considers that it lacks sufficient information, or that the case must be dealt with on the basis of an argument which has not been debated between the parties (see order in Case C‑17/98 Emesa Sugar [2000] ECR I‑665, paragraph 18; Case C‑210/03 Swedish Match [2004] ECR I‑11893, paragraph 25; Case C‑466/03 Albert Reiss Beteiligungsgesellschaft [2007] ECR I-5357, paragraph 29; and Case C‑491/06 Danske Svineproducenter [2008] ECR I‑000, paragraph 21).

21However, in its application to have the oral procedure reopened, the applicant in the main proceedings states that it several times at the hearing drew attention, inter alia, to what were, in its opinion, the correct facts in relation to the effects of rounding.

22Having heard the Advocate General, the Court considers in this case that it has all the information required to reply to the questions referred and that, accordingly, there is no need to order the reopening of the oral procedure.

23Consequently, the application for an order reopening the oral procedure must be dismissed.

The questions referred for a preliminary ruling

The first question

24In reply to the first question, the provisions of the First and Sixth Directives contain no explicit rule concerning rounding of amounts of VAT. In particular, the Sixth Directive is silent on that matter.

25It is true that the substantive content both of the provisions of Article 22(3)(b) of the Sixth Directive, both in the version applicable at the material time and in the version amended by Directive 2001/115 which entered into force on 1 January 2004 and which, consequently, is not applicable to the main proceedings, and of the provisions of Article 22(5) is capable of referring by implication to rounded amounts of VAT, as is submitted by the referring court. However, it is common ground that those provisions do not lay down any express rule as to the manner in which rounding must be carried out.

26The same is true of Article 11A(1)(a) of the Sixth Directive. That provision restricts itself to determining the taxable amount and it refers only to the price of the goods supplied and the services performed as consideration for the price.

27That finding is in no way affected by the requirement that the objectives and context of each of the provisions referred to in the two preceding paragraphs must be taken into account in their interpretation (see, in particular, Case C‑491/01 British American Tobacco (Investments) and Imperial Tobacco [2002] ECR I‑11453, paragraph 203 and case‑law there cited; Case C‑12/00 Commission v Spain [2003] ECR I‑459, paragraph 55; and Case C‑437/06 Securenta [2008] ECR I‑000, paragraph 35).

28It is clear from the 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, p. 16) that the objective of the turnover tax is to achieve equal conditions of taxation for the same supply, no matter in which Member State it is carried out (Case C‑475/03 Banca Popolare di Cremona [2006] ECR I‑9373, paragraphs 20 and 23). In that context, the purpose of Article 11A(1)(a) of the Sixth Directive is to guarantee uniformity, in the Member States, of the amount which is to be taxable.

29The same applies to Article 22(3)(b) of the Sixth Directive, in relation to which it is evident from the fourth recital in the preamble to Directive 2001/115 that the purpose of the particulars which must appear on invoices is to ensure that the internal market functions properly. Lastly, the objective of Article 22(4) and (5) of the Sixth Directive is to ensure that the tax authority has available to it all the information required in order to calculate and collect the exact amount of tax payable.

30It follows that it cannot be inferred from either the wording of those provisions or their objectives that a specific method of rounding has been laid down by Community law.

31Consequently, in the absence of any Community legislation, it is for the legal systems of the Member States to determine, within the limits of Community law, the method and rules for rounding of an amount declared by way of VAT.

32When Member States establish or accept a particular method of rounding, they are obliged to observe the principles governing the common system of VAT, such as those of fiscal neutrality and proportionality. It does not, however, follow from observance of those recognised principles of the Community legal system that the question as to which specific method of rounding should be used is itself within the scope of Community law.

33Having regard to all of the foregoing, the answer to be given to the first question is that, in the absence of specific Community legislation, it is for Member States to decide on the rules and methods of rounding amounts of VAT, those States being bound, when making that decision, to observe the principles underpinning the common system of VAT, in particular those of fiscal neutrality and proportionality.

The second question

34By its second question, the referring court seeks to know whether the directives entail a specific obligation that Member States must permit taxable persons to round down per item the amount of VAT.

35In the light of the answer given to the first question, the Court must, in order to give a useful answer to the referring court in relation to the second question, determine whether Community law, as it emerges from the principles underpinning the common system of VAT, in particular the principles of fiscal neutrality and proportionality, obliges a Member State to permit taxable persons to round down per item the amount of VAT payable to the tax authority. Such an obligation presupposes that there is only one method of rounding, namely that involving rounding down per item the amount of the tax, which is capable of satisfying such requirements.

36One of the consequences of the principle of fiscal neutrality, which is the reflection in the field of VAT of the principle of equal treatment, is that taxable persons must not be treated differently, with regard to the method of rounding applied when VAT is calculated, in respect of similar services which are in competition with each other (see, to that effect, Joined Cases C‑443/04 and C‑444/04 Solleveld and van den Hout-van Eijnsbergen [2006] ECR I‑3617, paragraph 35 and case‑law there cited). By virtue of the same principle, the amount of VAT to be collected by the tax authority must correspond exactly to the amount of VAT declared on the invoice and paid by the final consumer to the taxable person (see, to that effect, Case C‑317/94 Elida Gibbs [1996] ECR I‑5339, paragraph 24).

37Accordingly, that principle does not entail any requirement that a particular method of rounding be applied, in so far as the method chosen by the Member State concerned ensures that the amount of VAT to be collected by the tax authority corresponds exactly to the amount of VAT declared on the invoice and paid by the final consumer to the taxable person.

38As regards the principle of proportionality, it is clear from the first paragraph of Article 2 of the First Directive that VAT is a general tax on consumption exactly proportional to the price of goods and services (see, in particular, Banca Popolare di Cremona , paragraph 21, and Joined Cases C‑283/06 and C‑312/06 KÖGÁZ and Others [2007] ECR I‑8463, paragraph 29).

39While observance of that principle requires, when rounding is necessary, it to be carried out in such a way that the rounded amount corresponds as closely as possible with the amount of VAT arising from application of the rates in force, the fact remains that such an operation, of its nature, is intended to facilitate calculation and must, therefore, reconcile the requirement of, so far as possible, exact proportion with the practical necessity that the common system of VAT based on the principle of a return from the taxable person should operate effectively.

40In any event, it is unnecessary for the Court to rule on whether the rounding down per item method is capable of satisfying the requirements of the principle of proportionality within the meaning of the first paragraph of Article 2 of the First Directive, since it is clear from, inter alia, the illustrative calculations provided in the observations submitted to the Court and outlined by the Advocate General in point 47 of her Opinion, that there are methods of calculation which can satisfy those requirements.

41Consequently, because of the technical nature of rounding, it is also the case that the principle of proportionality does not contain requirements from which it can be inferred that only one method of rounding, namely that involving rounding down per item the amount of VAT, is able to satisfy the principle of proportionality.

42It follows from the foregoing that Community law, in particular the provisions of the First and Sixth Directives and the principles of fiscal neutrality and proportionality, contains no specific obligation for Member States to permit taxable persons to round down per item the amount of VAT.

43Consequently, the answer to the second question must be that Community law, as it now stands, entails no specific obligation for Member States to permit taxable persons to round down per item the amount of VAT.

Costs

Costs

44Since 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 (Fourth Chamber) hereby rules:

1. In the absence of specific Community legislation, it is for Member States to decide on the rules and methods of rounding amounts of value added tax, but those States must, when making that decision, observe the principles underpinning the common system of that tax, in particular the principles of fiscal neutrality and proportionality.

2. Community law, as it now stands, entails no specific obligation for Member States to permit taxable persons to round down per item the amount of value added tax.

Opinion of the Advocate-General

1Whatever the rate of VAT charged on transactions, there will always be cases – unless the choice of possible rates and prices is artificially limited – in which the amount due comprises a fraction of the smallest currency unit used in payment. (2) In such cases, rounding will be necessary. Questions then arise as to whether the rounding should be up or down and as to the stage at which it should take place – for each item, each till receipt or invoice, each tax return, etc. Differing answers to those questions may entail significant differences in overall amounts of tax to be accounted for.

2The present reference for a preliminary ruling from the Netherlands Hoge Raad (Supreme Court) asks (a) whether rounding is governed by national or Community law and, (b) if the latter, whether Member States must permit rounding down per item even where multiple transactions are included in the same invoice or VAT return. (3)

Relevant Community legislation

3Article 2 of the First VAT Directive, (4) in force at the material time in the present case (October 2003), provided:

‘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 or services, shall be chargeable after deduction of the amount of value added tax borne directly by the various cost components.

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

4More detailed provisions appear in the Sixth Directive. (5) Two concern rounding – but of percentages, not amounts. Article 19 (6) regulates the pro rata calculation of deductible input tax when inputs are used for both taxed and exempt outputs; according to Article 19(1), the deductible portion of input tax is to be expressed as a percentage rounded up to the nearest integer. And Article 25(3), (7) on the common flat-rate scheme for farmers, provides that the compensation percentage may be rounded up or down to the nearest half point.

5The following provisions of the Sixth Directive have been cited as relevant to the issues in the present case.

6Article 2(1) (8) states that the supply of goods for consideration, by a taxable person acting as such, is to be subject to VAT. Article 5(1) (9) defines a supply of goods as the transfer of the right to dispose of tangible property as owner.

7Under Article 10(1) and (2), the chargeable event is the occurrence by virtue of which the legal conditions necessary for tax to become chargeable are fulfilled, namely when the tax authority becomes entitled to claim the tax from the person liable to pay. That occurs in principle when goods are delivered or services performed. (10)

8Article 11A (11) lays down the general rule that the taxable amount is, essentially, the whole consideration obtained by the supplier for the supply, whether from the customer or from any other source.

9Article 12(3)(a) requires Member States to fix a standard rate of VAT and authorises reduced rates for certain categories of supply. (12)

10Article 17(1) and (2) (13) gives taxable persons the right to deduct from the output tax for which they must account the amount of VAT they have paid on input supplies used for the purposes of their taxable output transactions.

11Article 22(3)(a) (14) requires taxable persons to ensure that an invoice is issued in respect of each taxable supply they make to another taxable person or to a non-taxable legal person (thus, by implication, there is no such requirement for supplies to final consumers who are natural persons (15) ), and Article 22(3)(b) requires that invoice to include, among other information, the price exclusive of tax and the relevant tax at each rate as well as any exemptions. (16) Article 22(5) (17) requires every taxable person to pay the net amount of VAT (that is to say, output tax minus input tax) when submitting the regular return. (18)

12The Commission also draws attention to certain provisions of Directive 98/6/EC. (19) In particular, Article 2(a) of that directive defines ‘selling price’, in retail trade, as the final price for a unit or given quantity of a product, including VAT and all other taxes, and Article 3(1) requires the selling price to be indicated for all products concerned.

Relevant Netherlands legislation

13VAT is governed in the Netherlands by the Wet op de omzetbelasting (Law on turnover tax) 1968 and by the Uitvoeringsbesluit omzetbelasting (Implementing decree on turnover tax) 1968. The standard rate of VAT is 19%, and there is also a reduced rate of 6%.

14At the material time in the present case, there was no provision governing rounding of amounts due. With effect from 1 July 2004 a new Article 5a was added to the Uitvoeringsbesluit omzetbelasting:

‘In the calculation of the tax on the basis of the amount charged and the customs value … the amount of the tax liability shall be arithmetically rounded to whole cents. The arithmetic rounding shall be effected in such a way that, in the case of amounts in which the third decimal place is equal to or exceeds 5, the amount is rounded up and, where the third decimal place is less than 5, the amount is rounded down.’

15The explanatory memorandum concerning that amendment stated that the problem of rounding had been discussed by the VAT Advisory Committee, (20) and that the Commission’s position was that, as the Directive did not contain any provisions on the matter, the Member States could regulate it at national level in accordance with the principle of subsidiarity.

16The explanatory memorandum also stated that the method prescribed was confined to the requirement of arithmetic rounding to whole cents, but that the tax could be calculated and rounded per supply of goods or per service provided, or the rounding could be applied to the total amount involved in a number of supplies.

17Article 38 of the Wet op de omzetbelasting requires traders to offer goods or services at a VAT-inclusive price, except where the customer is a taxable person or a public body.

Background and procedure

18Koninklijke Ahold NV (‘Ahold’) operates supermarkets in the Netherlands. As a retailer, it is required to offer items for sale at VAT-inclusive prices.

19In October 2003 it calculated and declared the output VAT in respect of sales in all its supermarkets on the basis of the total amount per till receipt or ‘shopping basket’. It split the total VAT-inclusive amount shown on each receipt into three subtotals for items (a) at the standard rate, (b) at the reduced rate and (c) on which it did not have to account for VAT, which was prepaid under a special scheme. It multiplied the first two subtotals by 19/119 and 6/106 respectively, to obtain the amount of VAT included in the price. (21) Each of those amounts was then rounded arithmetically (up or down) to whole cents. The totals thus determined were declared as output tax and used to calculate the amount of VAT due (output tax minus input tax).

20However, at two supermarkets, it made in addition, for its own purposes, a different calculation on the basis that (a) the amount of VAT should be determined not for each till receipt but for each item sold and (b) any necessary rounding should always be down to the nearest whole cent. Ahold thus calculated that, in respect of the two stores and the period at issue, it should have been liable for EUR 1 414 less than it actually declared and paid.

21Ahold’s challenge to the refusal to reimburse that sum has now reached the Hoge Raad. It argues that any method of rounding which leads to an amount of tax due being higher, by however little, than the amount reached by strict application of the appropriate VAT rate is inconsistent with Community law.

22The Hoge Raad asks for a ruling on the following questions:

‘(1) Is the rounding of VAT amounts governed solely by national law, or – particularly in view of [Articles 11A and 22(3)(b) and (5) of the Sixth Directive] – is it a matter for Community law?

(2) If the latter is the case, does it follow from the aforementioned Directive provisions that the Member States are required to permit rounding down per article, even if different transactions are included in one invoice and/or one tax return?’

23Written observations have been submitted by Ahold, by the Greek, Netherlands, Polish and United Kingdom Governments and by the Commission, all of whom except the Polish Government were represented at the hearing.

Assessment

First question – governing law

24It is clear that no provision in any of the Community VAT directives explicitly regulates the rounding of VAT amounts. Although Articles 11A and 22(3)(b), to which the Hoge Raad refers, are relevant to the determination of VAT amounts, they fall far short of the degree of precision which would be required to draw any specific conclusion as to rounding of those amounts. That being so, and since the issue of rounding is inescapable, the necessary detailed regulation must be a matter for national law. (22)

25That conclusion is supported, moreover, as several Member States have pointed out, by the Treaty provisions on harmonisation of turnover taxes (Article 93 EC) and directives (Article 249 EC, third paragraph).

26It is however equally clear that, in an area covered by a harmonising directive, Member States may not adopt measures which run counter to, or are inconsistent with, the rules or principles laid down in that directive, or any higher rules or principles applicable in Community law. (23)

27In other words, the issue of rounding is not solely a matter for national or Community law; it falls to be regulated in detail by national law within the limits required by Community law.

Second question – rounding down per item

28In that light, the second question is essentially whether a national rule which allows traders to round VAT down to the nearest cent on each item sold is required by, consistent with or incompatible with Community VAT law, in particular the Sixth Directive.

29In my view, such a rule is incompatible with the principles governing VAT, for the reasons given below. Although the issue has two facets – rounding down and rounding per item – the two are closely interlocked and I shall consider them together.

30A preliminary point is that the issue arises before the Hoge Raad in the context of supplies to final consumers at VAT-inclusive retail prices. For the moment, I shall confine my analysis to that context – which, from the point of view of rounding, differs somewhat from supplies to other taxable persons and supplies at net prices to which VAT is added. (24)

31Two requirements seem to me to be of paramount importance: that VAT must be exactly proportional to price and that it should be neutral vis-à-vis traders.

32The first of those requirements is explicit in Article 2 of the First Directive. It means that the amount of VAT included in a retail price must represent, for any given rate of VAT, the exact proportion of the price which flows from the application of that rate. Where the rate is 19%, the exact proportion of tax in the retail price is 19/119 of that price. That remains an exact proportion, whether it can be expressed as a whole number of cents or not.

33The second requirement flows both from that article and from the deduction system in Article 17(1) and (2) of the Sixth Directive. VAT must burden only the final consumer and not the various traders and service providers who have contributed to the final product or through whose hands it has passed. (25) Conversely, those operators must account to the tax authorities for all amounts of VAT paid by the final consumer, and may not retain any such amount for their own profit.

34For a final consumer, who bears the burden of VAT but neither pays it separately nor deducts it at a later stage, it is unnecessary to fix the amount of tax included in a retail price as a whole number of cents. He may legitimately wish to be informed of the amount as well as the percentage, but for that purpose an approximate indication to the nearest cent is sufficient. Such an indication on a till receipt, rather than on a VAT invoice issued in accordance with Article 22(3) of the Sixth Directive, need not bind the retailer or the tax authority in any regard.

35It is, by contrast, of practical importance to both of the latter that accurate figures be used in the calculations determining amounts due.

36In accordance with Article 22(4) and (5) of the Sixth Directive, the amount of output tax must be declared by the taxable person in his regular return, where it will serve as an element in the calculation of the net tax which he must pay when submitting the return.

37Any increase in the amount declared (the result of rounding up) means an increase in the net tax to be paid to the tax authority, and any decrease (the result of rounding down) means a decrease in that net tax. (26)

38Thus, although the exact proportion of tax included in each retail price and paid by the consumer (19/119 of that price, in our example) does not vary, rounding the amount up to the nearest cent in the regular return would oblige the retailer to pay out of his profit a fraction of a cent more than is actually due, and rounding down would allow him to retain a fraction of a cent as additional profit.

39It might be objected that a fraction of a cent is a tiny amount, and not such as to compromise seriously the integrity of the VAT system. However, where a fraction of a cent is multiplied by the number of items sold in a given tax period, the impact can be considerable.

40Ahold’s calculation indicates that, for two of its stores for one month, the difference would have been about EUR 1 400. According to its websites, Ahold operates over 2 000 retail outlets of varying sizes in the Netherlands alone. In that light, the United Kingdom Government’s rough estimate that, ‘if the four largest supermarket chains making supplies in the United Kingdom were to be permitted to operate rounding down per article, without any change of prices paid by customers, it would lead to a rounding down of the VAT accounted for and paid by those supermarket chains of well in excess of GBP 70 million per annum (EUR 100 million)’, seems plausible. (27)

41There is no reason to suppose that rounding up would lead to any less distortion than rounding down, but the distortion could be greater in Member States where the smallest currency unit used is larger than the cent.

42Systematic rounding down or rounding up of the amount of VAT due on each item sold would thus lead to significant overall divergence from a result fully consistent with the principles of exact proportionality and neutrality of VAT. (28) With rounding down, in the aggregate, significant sums of VAT would be paid by customers and retained by retailers rather than being handed over, as due, to the tax authorities; with rounding up, similar amounts would be collected by the authorities from retailers, although not due and not paid by customers.

43Consequently, Community VAT law cannot permit – let alone require – systematic rounding down (or up) of the VAT on each item sold by retailers when accounting for tax.

44That conclusion answers the Hoge Raad’s second question.

45However, it may be helpful to consider what types of solution may be acceptable, bearing in mind that the situation of immediate interest concerns retail sales to final consumers at VAT-inclusive prices.

46At least two types of approach would appear suitable in order to reduce or minimise, if not completely eliminate, the distortion I have highlighted above. They could be applied independently or in combination.

47First, as all the Member State Governments submitting observations have pointed out, the common arithmetic method of rounding, in which any fraction of a cent below 0.5 is rounded down and any fraction of 0.5 and above is rounded up, both to the nearest cent, is likely to reduce the distortion in question, in so far as sums rounded down will tend to cancel out the sums rounded up. (29)

48Such an approach need not affect the amount of VAT included in the price paid by each consumer for each item, which, at a rate of 19%, remains at 19/119 of the retail price. (30) It is, rather, a practical means of achieving an approximation of the total of those individual amounts for which each retailer must account to the tax authority in his regular return. A possibly greater degree of accuracy could be achieved by calculating the amount of VAT in the price of each item to, say, the eighth or tenth decimal place and totalling all the amounts thus calculated before rounding to the nearest cent, but that refinement seems unnecessarily elaborate (and burdensome for the smaller trader).

49Second, following on from the last consideration, no rounding need take place at all until an actual payment of VAT has to be made, separate from any indication of VAT-inclusive prices. That stage is not reached until the amount due with each regular return in accordance with Article 22(5) of the Sixth Directive is calculated. Until then, retailers’ accounts need state only VAT-inclusive prices for each applicable rate of tax; the amount of tax included in those prices can simply be recorded as 19/119, or 6/106 or whatever the applicable fraction is (the ‘exact proportion’ required by Article 2 of the First Directive). If rounding is confined to the final stage, the result is more accurate and the burden of calculation is, moreover, reduced.

50If the effect of rounding is thus limited to a fraction of a cent for each retailer for each rate of tax in each regular return, there will be no serious distortion of the total amount of tax collected compared with the total amount paid by consumers, and the distortion of neutrality cannot exceed a few cents per retailer.

51Moreover, if rounding is deferred to the latest possible stage, systematic rounding down will not affect the integrity of the system to more than a truly negligible extent. The Court specified in Elida Gibbs that, in the final reckoning, the amount benefiting the tax authority may not exceed the tax paid by the final consumer. (31) If that dictum is to be followed strictly, systematic rounding down at the stage of the regular return would appear to be the solution which most closely respects the rules and principles to be observed.

52I should like to add just one final remark here. Retailers must, by virtue of Directive 98/6, indicate VAT-inclusive selling prices. As was discussed at the hearing, they fix those prices in response to market considerations: their desired profit margin, the price the customer is willing to pay and the price charged by competitors. It is clear that rounding of VAT amounts can affect those considerations, particularly where low-price, high-turnover items are concerned. However, VAT is intended to be neutral vis-à-vis traders, and VAT calculations should not be allowed to influence commercial decisions of that kind. In that regard, it is particularly important to bear in mind that large supermarket chains have a much greater ability to take such calculations into account than do small traders, so that any possibility of rounding VAT on individual items may distort competition in favour of the former to the detriment of the latter.

53In summary: (i) where amounts have to be totalled, arithmetic rounding will lead to less distortion than systematic rounding up or down (and rounding to even will reduce the distortion still further); (ii) distortion can be more effectively minimised by calculating amounts due only after totalling individual VAT-inclusive amounts for each tax period; (iii) at that stage, in order to avoid any excess payment to the tax authority, it is acceptable to round the amount due down to the nearest minimum unit of payment in all cases.

54I would stress that the approaches I have outlined should not be viewed as necessarily the only possibilities open to Member States. Any solution which respects the relevant rules and principles – and in particular which does not involve the retailer either keeping or paying any difference between the exact proportion of VAT in the retail price and the amount accounted for to the tax authority – is acceptable.

VAT-exclusive prices and supplies to taxable persons

55The case before the Hoge Raad concerns retail sales at VAT-inclusive prices. The considerations set out above relate to that specific context, and assume that sales are made to final consumers. Such consumers, as I have indicated, are entitled to know the proportion of VAT included in the price they have paid, and may be informed how much it amounts to, to the nearest cent. That information is commonly given on retailers’ receipts, but need not be binding as between the trader and the tax authority.

56However, where sales are made to taxable persons who will use the goods in question for the purposes of their taxable outputs, it is necessary to issue a VAT invoice in accordance with Article 22(3) of the Sixth Directive. That invoice must state both the price exclusive of tax and the amount of tax, each of which must thus be expressed as an amount capable of payment.

57Such situations normally concern not retailers but traders whose business is essentially to supply other taxable persons. Unlike retail traders, they typically fix a price – in whole cents – exclusive of tax, then apply VAT at the appropriate rate to that price. In order to indicate the amount of VAT as a whole number of cents, it will again often be necessary to round the amount up or down.

58However, in such a situation, the distortions I have outlined above either do not arise or have greatly mitigated effects.

59As regards individual transactions, where the output tax charged by the supplier represents input tax which will subsequently be deducted by the customer, the amount neither burdens nor benefits either party and, because the output tax and the input tax cancel each other out by the operation of the deduction system, the amount collected on the supply to the final consumer at the end of the VAT chain is unaffected.

60In the rarer cases where the supply is to a final consumer, rounding, although it has a slight effect on the amount paid by the customer and collected by the tax authority, does not affect the neutrality of the tax from the supplier’s point of view. The amount invoiced is the amount which must be accounted for to the tax authority, and the fraction by which it is rounded does not affect the supplier’s margin either way. (32)

61It is true that the cumulative effect of rounding on such transactions may affect the overall amount of VAT revenue collected by the Member State, but that effect will be limited. Final consumers obtain their supplies overwhelmingly from retailers who are required to sell at VAT-inclusive prices. On the occasions when they do not, their purchases are likely to be of more substantial value, so that rounding by less than one cent will represent an appreciably smaller proportional difference. If rounding is arithmetic, the effect, both on overall VAT receipts and on individual customers, will be limited.

62Where, in exceptional individual transactions, a taxable person purchases from a retailer items which he will use for his taxable outputs and the VAT on which he will wish to deduct, he will request an invoice stating the net price together with the amount of tax. In that event, the retailer must make a slight adjustment to his price in order to be able to show those amounts in whole cents. However, for the reasons I have explained, that adjustment will have no effect on either party or on the amount of VAT ultimately collected.

Conclusion

Conclusion

63In the light of all the above considerations, I propose that the Court should answer the questions raised by the Hoge Raad as follows:

(1) The Community VAT directives do not regulate in detail the rounding of amounts of VAT. Such regulation is therefore a matter for national law, which must, however, comply in that regard with all the relevant rules and principles which flow from the directives.

(2) Those rules and principles do not permit retailers to round down the amount of VAT in the VAT-inclusive price of each item sold, in order to determine the amount of output tax which they must declare in their regular returns.

(1) .

(2) – In the present case, which concerns amounts in euros, that smallest unit is the cent, to which I shall refer, but the name of the unit is irrelevant.

(3) – Similar questions are raised in Case C-302/07 Wetherspoon , pending before the Court, in which it is asked also (c) whether the common arithmetic method of rounding up or down can be imposed, (d) at what stage rounding must take place and (e) what consequences flow from the principles of equal treatment and VAT neutrality when tax authorities allow some but not all traders to round down systematically.

(4) – First Council Directive 67/227/EEC of 11 April 1967 on the harmonisation of legislation of Member States concerning turnover taxes (OJ, English Special Edition 1967 I, p. 14). With effect from 1 January 2007, the First Directive was repealed and replaced by Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ 2006 L 347, p. 1), Article 1(2) of which contains the same provisions, with minor linguistic changes. The aim of Directive 2006/112 is to present all the applicable Community VAT provisions clearly and rationally in a recast structure and wording without, in principle, bringing about material changes in the existing legislation (see recital 3 in the preamble). References below to provisions of Directive 2006/112 do not therefore imply identity of wording with the equivalent provisions of the repealed directives.

(5) – 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, amended on numerous occasions). The Sixth Directive was also repealed and replaced by Directive 2006/112 but, for the sake of readability, I shall refer to its provisions in the present tense. The substance – and to a large extent the wording – of those provisions remains in force in the equivalent provisions of Directive 2006/112.

(6) – Article 175 of Directive 2006/112.

(7) – Articles 295 to 305 of Directive 2006/112, at Article 298.

(8) – Article 2(1)(a) of Directive 2006/112.

(9) – Article 14(1) of Directive 2006/112.

(10) – Articles 62, 63 and 66 of Directive 2006/112.

(11) – Article 73 of Directive 2006/112.

(12) – Articles 96 to 99 of Directive 2006/112.

(13) – Articles 167 and 168 of Directive 2006/112.

(14) – The applicable text of Article 22 was to be found, at the material time, in Article 28h of the Sixth Directive, as one of the ‘transitional provisions’; the equivalent of Article 22(3)(a) is now in Article 220 of Directive 2006/112.

(15) – At least in domestic trade – the requirement extends to all distance sales taxed in the Member State of arrival and intra-Community supplies of goods, regardless of the type of customer.

(16) – That version of Article 22(3)(b) had in fact been superseded at the material time by virtue of Council Directive 2001/115/EC of 20 December 2001 amending Directive 77/388/EEC with a view to simplifying, modernising and harmonising the conditions laid down for invoicing in respect of value added tax (OJ 2002 L 15, p. 24), which set out a more detailed list of requirements. Directive 2001/115 entered into force on 6 February 2002, but the deadline for its implementation by the Member States was 1 January 2004. It appears that the Netherlands transposition took effect on that date (Law of 18 December 2003, Staatsblad n° 530, 29 December 2003, p. 1). The Hoge Raad refers to ‘the 10th indent of Article 22(3)(b) of the Sixth Directive (in the version applicable until 1 January 2004)’ – but it is in fact only the version amended by Directive 2001/115 which contains a 10th indent, requiring the invoice to state the VAT amount payable. However, since the relevant point is that a VAT invoice must indicate the amount of VAT on the transaction, the confusion is immaterial. The equivalent provisions are now in Article 226 of Directive 2006/112.

(17) – Article 206 of Directive 2006/112.

(18) – Under Article 22(4)(a), the tax period is to be fixed by each Member State at one, two or three months, or any other period not exceeding one year, and the regular return is to be submitted by a deadline, again to be fixed by the Member State, of not more than two months from the end of the tax period (see now Article 252 of Directive 2006/112).

(19) – Of the European Parliament and of the Council of 16 February 1998 on consumer protection in the indication of the prices of products offered to consumers (OJ 1998 L 80, p. 27).

(20) – A forum set up under Article 29 of the Sixth Directive (Article 398 of Directive 2006/112) in which representatives of the Member States and the Commission discuss issues relating to the implementation of VAT.

(21) – It is important to bear in mind that, in the case of retail prices, VAT must be calculated backwards from a determined VAT-inclusive price and not forwards from a notional VAT-exclusive price. A retail selling price including VAT at 19% comes to 119% of the net price excluding tax. The amount of VAT will thus be not 19/100 (19%) but 19/119 of the retail price. The same calculation applies, mutatis mutandis, for any other rate of VAT.

(22) – For an analogous example, see Case C-35/05 Reemtsma [2007] ECR I-2425, paragraph 38, and the case-law cited.

(23) – A point which has been made many times by the Court in the field of taxation: see, most recently, Case C-443/06 Hollmann [2007] ECR I-0000, paragraph 33, and the case-law cited there.

(24) – For a consideration of the latter situations, see point 55 et seq. below.

(25) – See, for example, Case C-435/05 Investrand [2007] ECR I-1315, paragraph 22, and the case-law cited there.

(26) – Or, if input tax exceptionally exceeds output tax during the tax period in question, a decrease or increase, respectively, in the net amount to be reimbursed by the authority.

(27) – At the hearing, counsel for the United Kingdom spoke of even greater figures, between GBP 200 million and 800 million.

(28) – Systematic rounding at the till receipt or ‘shopping basket’ level must also have a significant, albeit lesser, effect, given the vast number of such receipts issued daily in any Member State.

(29) – At the hearing, the United Kingdom cited a case in which arithmetic rounding per article would have led to a tax discrepancy of over GBP 17 000 in six months for a single trader. It is also true that the arithmetic method contains a slight but systematic upwards bias in that 0.5 of a cent is always rounded up, even though it is exactly half way between two whole cents. That problem could be mitigated by ‘banker’s rounding’ or ‘rounding to even’, in which, for example, when rounding to whole numbers, any figure ending in exactly .5, followed by nothing else, is rounded to the nearest whole even number. Thus, 3.5 becomes 4, as before, but 2.5 becomes 2.

(30) – It may be indicated for the customer’s information in a rounded form, as I have suggested at point 34 above. Problems could arise, however, if the rounded amount were taken as the actual amount of VAT included in the price. For example, an item sold at EUR 0.28 with VAT at 19% contains EUR 0.0447 in VAT (19/119 of EUR 0.28). If that is rounded to EUR 0.04, the price exclusive of VAT is EUR 0.24. But 19% of EUR 0.24 is EUR 0.0456, which should be rounded to EUR 0.05, so that the VAT-inclusive price should have been EUR 0.29.

(31) – Case C-317/94 [1996] ECR I-5339, paragraphs 18 to 24, especially at paragraph 24. Although English was the language of the case, it seems to me that the formulation in the English version – ‘the tax authorities may not in any circumstances charge an amount exceeding the tax paid by the final consumer’ – does not accurately reflect the French in which the judgment was originally drafted – ‘l’administration fiscale ne saurait en définitive percevoir un montant supérieur à celui payé par le consommateur final’ (my emphasis).

(32) – It should be noted that this is not an option for true retail traders, who are obliged to set VAT-inclusive prices (see Directive 98/6, cited in point 12 above.)