C-49/09 Commission v Poland

JUDGMENT OF THE COURT (Third Chamber)

28 October 2010 (*)

(Failure of a Member State to fulfil obligations – Value added tax – Directive 2006/112/EC – Later accession of Member States – Transitional provisions – Temporal application – Application of a reduced rate – Clothing and clothing accessories for babies and children’s footwear)

In Case C‑49/09,

ACTION under Article 226 EC for failure to fulfil obligations, brought on 2 February 2009,

European Commission, represented by D. Triantafyllou and K. Herrmann, acting as Agents, with an address for service in Luxembourg,

applicant,

v

Republic of Poland, represented by M. Szpunar, M. Dowgielewicz, M. Jarosz and A. Rutkowska, acting as Agents,

defendant,

THE COURT (Third Chamber),

composed of K. Lenaerts, President of the Chamber, R. Silva de Lapuerta, E. Juhász, J. Malenovský and D. Šváby (Rapporteur), Judges,

Advocate General: J. Kokott,

Registrar: K. Malacek, Administrator,

having regard to the written procedure and further to the hearing on 22 April 2010,

after hearing the Opinion of the Advocate General at the sitting on 10 June 2010,

gives the following

Judgment

Legal context and the dispute

1By its application, the Commission of the European Communities seeks a declaration from the Court that, by applying a reduced value added tax (‘VAT’) rate of 7% to supplies, import and intra-Community acquisition of clothing and clothing accessories for babies and of children’s footwear, the Republic of Poland has failed to fulfil its obligations under Article 98 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ 2006 L 347, p. 1), in conjunction with Annex III thereto.

Legal context

European Union legislation

2Directive 2006/112 repeals and replaces, from 1 January 2007, Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment (OJ 1977 L 145, p. 1) (‘the Sixth Directive’).

3Article 96 of Directive 2006/112, corresponding to the first subparagraph of Article 12(3)(a) of the Sixth Directive, provides:

‘Member States shall apply a standard rate of VAT, which shall be fixed by each Member State as a percentage of the taxable amount and which shall be the same for the supply of goods and for the supply of services.’

4Under Article 97(1) of Directive 2006/112:

‘From 1 January 2006 until 31 December 2010, the standard rate may not be less than 15%.’

5Article 98(1) and (2) of that directive is worded as follows:

‘1. Member States may apply either one or two reduced rates.

2. The reduced rates shall apply only to supplies of goods or services in the categories set out in Annex III. …’

6Pursuant to Article 99(1) of Directive 2006/112, the reduced rates are to be fixed as a percentage of the taxable amount, which may not be less than 5%.

7Articles 109 et seq. of Directive 2006/112 determine the circumstances in which, as long as definitive arrangements have not been introduced, given Member States may apply different measures in the field of reduced VAT rates. Those measures concern the application of reduced rates lower than 5%, the retention of reduced rates on goods and services other than those set out in Annex III to Directive 2006/112 and the application of a reduced rate not lower than 12%.

8In accordance with Article 114(1) of Directive 2006/112:

‘Member States which, on 1 January 1993, were obliged to increase their standard rate in force at 1 January 1991 by more than 2% may apply a reduced rate lower than the minimum laid down in Article 99 to the supply of goods and services in the categories set out in Annex III.

The Member States referred to in the first subparagraph may also apply such a rate to restaurant services, children’s clothing, children’s footwear and housing.’

9Under Article 115 of Directive 2006/112:

‘Member States which, at 1 January 1991, were applying a reduced rate to restaurant services, children’s clothing, children’s footwear or housing may continue to apply such a rate to the supply of those goods or services.’

10Under Title VIII of Directive 2006/112, entitled ‘Temporary provisions’, Chapter 5 contains, in Articles 123 to 130, provisions authorising certain Member States which joined the European Union on 1 May 2004 to grant an exemption with deductibility of VAT paid at the preceding stage in respect of the supply of certain goods and to apply a reduced rate of VAT to certain goods.

11In relation to the Republic of Poland, Article 128 of Directive 2006/112 provides:

‘1. Poland may, until 31 December 2007 grant an exemption with deductibility of VAT paid at the preceding stage in respect of the supply of certain books and specialist periodicals.

2. Poland may, until 31 December 2007 or until the introduction of definitive arrangements, as referred to in Article 402, whichever is the earlier, continue to apply a reduced rate of not less than 7% to the supply of restaurant services.

3. Poland may, until 30 April 2008, continue to apply a reduced rate of not less than 3% to the supply of foodstuffs as referred to in point (1) of Annex III.

4. Poland may, until 30 April 2008, continue to apply a reduced rate of not less than 3% to the supply of goods and services of a kind normally intended for use in agricultural production, but excluding capital goods such as machinery or buildings, as referred to in point (11) of Annex III.

5. Poland may, until 31 December 2007, continue to apply a reduced rate of not less than 7% to the supply of services, not provided as part of a social policy, for construction, renovation and alteration of housing, excluding building materials, and to the supply before first occupation of residential buildings or parts of residential buildings, as referred to in point (a) of Article 12(1).’

12Those derogations were established in negotiations which gave rise to the Act concerning the conditions of accession to the European Union of the Czech Republic, the Republic of Estonia, the Republic of Cyprus, the Republic of Latvia, the Republic of Lithuania, the Republic of Hungary, the Republic of Malta, the Republic of Poland, the Republic of Slovenia and the Slovak Republic and the adjustments to the Treaties on which the European Union is founded (OJ 2003 L 236, p. 33) (‘the Act of Accession’). They appear in Chapter 9, point 1(a) to (c) of Annex XII to the Act of Accession.

13Article 24 of the Act of Accession states:

‘The measures listed in Annexes V, VI, VII, VIII, IX, X, XI, XII, XIII and XIV to this Act shall apply in respect of the new Member States under the conditions laid down in those Annexes.’

14Annex XII to the Act of Accession is entitled ‘List referred to in Article 24 of the Act of Accession: Poland’. Chapter 9 of that annex, entitled ‘Taxation’, contains Point 1 which states in the following terms that the rules on the common system of VAT are applicable:

‘31977 L 0388: 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 L 145 …, p. 1), as last amended by:

– 32002 L 0038: Council Directive 2002/38/EC of 7.5.2002 (OJ L 128 …, p. 41).

(a) By way of derogation from Article 12(3)(a) of Directive 77/388/EEC, Poland may (i) apply an exemption with refund of tax paid at the preceding stage on the supply of certain books and specialist periodicals, until 31 December 2007, and (ii) maintain a reduced rate of value added tax of not less than 7% on the supply of restaurant services until 31 December 2007 or until the end of the transitional period referred to in Article 28[l] of the Directive, whichever is the earlier.

(b) By way of derogation from Article 12(3)(a) of Directive 77/388/EEC, Poland may maintain (i) a reduced rate of value added tax of no less than 3% on foodstuffs (including beverages but excluding alcoholic beverages) for human and animal consumption; live animals, seeds, plants and ingredients normally intended for use in preparation of foodstuffs; products normally intended to be used to supplement or substitute foodstuffs; and on the supply of goods and services of a kind normally intended for use in agricultural production, but excluding capital goods such as machinery or buildings, referred to in points 1 and 10 of annex H to the Directive, until 30 April 2008, and (ii) a reduced rate of value added tax of no less than 7% on the supply of services, not provided as part of a social policy, for construction, renovation and alteration of housing, excluding building materials, and on the supply before first occupation of residential buildings or parts of residential buildings as referred to in Article 4(3)(a) of the Directive until 31 December 2007.

(c) For the purposes of applying Article 28(3)(b) of Directive 77/388/EEC, Poland may maintain an exemption from value added tax on international transport of passengers referred to in point 17 of Annex F to the Directive, until the condition set out in Article 28(4) of the Directive is fulfilled or for as long as the same exemption is applied by any of the present Member States, whichever is the earlier.’

National legislation

15In accordance with Article 41 of the Law of 11 March 2004 on value added tax (Dz. U No 54, item 535), as amended (‘the Law on VAT’), the standard rate of VAT is 22%, with certain derogations. By contrast, Article 41(2) of that law provides that, for the goods and services listed in Annex III thereto, the VAT rate is 7%.

16Annex III to the Law on VAT lists, under item 45, ‘clothing and clothing accessories for babies’ and, under item 47, ‘children’s footwear’.

Pre-litigation procedure

17Considering that the application of a reduced VAT rate of 7% to supplies, import and intra-Community acquisition of clothing and clothing accessories for babies and of children’s footwear is contrary to Article 98 of Directive 2006/112, in conjunction with Annex III thereto, the Commission decided to initiate proceedings for failure to fulfil obligations under Article 226 EC. By letter of 23 March 2007 it invited the Republic of Poland to submit its observations.

18In its reply of 22 May 2007, the Republic of Poland submitted that the application of a reduced VAT rate to the goods concerned forms part of the measures aimed at supporting families and increasing the birthrate in Poland, which are in line with the objectives of the ‘Lisbon Strategy’. It also referred to the application of reduced VAT rates on those goods in Ireland, Luxembourg and the United Kingdom. Finally, it considered that, in the light of the limited application in time of the reduced rate at issue, there could be no distortion of competition.

19Since it was not convinced by that reply, the Commission issued a reasoned opinion on 1 February 2008 in which it called on the Republic of Poland to take the measures required to comply with it within two months of the date of receipt.

20By letter of 31 May 2008, the Republic of Poland reiterated its position.

21Since the Commission was not convinced by the arguments of the Republic of Poland, it decided to bring the present action.

The action

Arguments of the parties

22The Commission complains that the Republic of Poland is applying a reduced VAT rate of 7% to supplies, import and intra-Community acquisition of clothing and clothing accessories for babies and of children’s footwear, contrary to Article 98 of Directive 2006/112, in conjunction with Annex III thereto.

23The Commission notes that the purpose of Directive 2006/112 is to harmonise VAT. Since the reduced rate of VAT constitutes an exception to the rule, its application should be limited to the concrete and specific situations clearly referred to in that directive.

24The Commission points out that Article 98(2) of Directive 2006/112 states unequivocally that the reduced rates apply to supplies of goods only in the categories set out in Annex III thereto and that the directive does not refer to either ‘clothing and clothing accessories for babies’ or ‘children’s footwear’.

25The fact that certain Member States maintained a reduced VAT rate for the goods at issue pursuant to both Article 114 and Article 115 of Directive 2006/112 if they were applying that rate at 1 January 1991 does not constitute an argument which also authorises the Republic of Poland to apply a reduced VAT rate to those goods.

26The Commission submits, primarily, that, by virtue of its ratio legis, Article 115 of Directive 2006/112, which corresponds to Article 28(2)(d) of the Sixth Directive, as amended by Directive 92/77/EEC of 19 October 1992 (OJ 1992 L 316, p. 1), is addressed only to the Member States which formed part of the European Community when Directive 92/77 was adopted, and authorises them, by derogation, to maintain the reduced VAT rates, provided that those rates were applicable in those Member States at 1 January 1991 (see, to that effect, Case C‑267/99 Adam [2001] ECR I‑7467, paragraph 34).

27It points out that the Republic of Poland was not a Member State when Directive 92/77 was adopted and that the Act of Accession does not state that that Member State is entitled to benefit from the transitional provisions laid down in Articles 114 and 115 of Directive 2006/112 (see, by analogy, Case C‑169/00 Commission v Finland [2002] ECR I‑2433, paragraph 30).

28In the alternative, the Commission submits that the conditions for the application of Article 115 of Directive 2006/112 are not satisfied in any event.

29First, at 1 January 1991, the tax established by the Law of 16 December 1972 on turnover tax (consolidated text Dz. U of 1983, No 43, item 191), as amended (‘the Law of 16 December 1972’), did not constitute VAT for the purposes of Article 115 of Directive 2006/112.

30Second, the Republic of Poland was not applying a reduced rate to the goods at issue at 1 January 1991.

31The Republic of Poland submits that, in accordance with European Union law and, in particular, Article 115 of Directive 2006/112, it is entitled to maintain a reduced VAT rate for the goods at issue and that that possibility is strengthened by social considerations which are in line with the general objectives of the European Union.

32The Republic of Poland maintains that, although the political situation of a Member State during the negotiations of the conditions for its accession may cause that State to indicate expressis verbis in the Accession Treaty the categories of exemption which are particularly sensitive from a social point of view or which give rise to significant debate prior to accession, that cannot, however, support the claim that a Member State which has not had them included in the conditions for the Act of Accession is not able to apply Article 115 of Directive 2006/112.

33The Republic of Poland asserts that a reduced rate for the sale of goods, including clothing and footwear for children, was applied in Poland at 1 January 1991 in accordance with the Law of 16 December 1972. The VAT scheme in Poland, which was put in place following the entry into force of the Law of 8 January 1993 on the taxation of goods and services (Dz. U No 11, item 50), as amended, is very similar to that of the European Union since it was modelled on that system. The Republic of Poland has thus always applied a reduced rate of 7% to those goods. It therefore satisfies the conditions for the application of Article 28(2)(d) of the Sixth Directive and, consequently, of Article 115 of Directive 2006/112, even if that provision was not adopted in the Act of Accession.

34The Commission’s argument that the Act of Accession does not contain any provisions corresponding to the wording of Article 115 of Directive 2006/112 for the goods at issue, whereas it contains provisions to that effect in relation to the application of a reduced rate to restaurant and housing services, constitutes an argument a contrario, which cannot be accepted. According to the Republic of Poland, it cannot be inferred from the fact that certain provisions, referring to goods and services covered by a reduced VAT rate on the basis of derogations from the provisions of the Sixth Directive, were adopted in the provisions of the Act of Accession that other goods and services, referred to exclusively in secondary legislation, cannot be made subject to that rate. The adoption of provisions of secondary legislation in the Act of Accession can only be of declaratory value.

35Refusing the ‘new’ Member States the possibility of applying Article 115 of Directive 2006/112 favours the ‘old’ Member States. Significant differences in the level of taxation – in the region of 10% in terms of the VAT rate applied – leads to different prices for the same goods in different Member States which, in accordance with recitals 4 and 7 in the preamble to that directive, distorts intra‑Community competition.

36The Republic of Poland submits that it must be permitted to maintain a reduced VAT rate for social reasons which are consistent with the objectives of the European Union, which not only target economic growth but also social progress.

37As is apparent from recital 6 in the preamble to Directive 2006/112 and the case‑law, the objective of the derogations from the provisions of that directive is to reduce as far as possible the negative effects for the economy and for society of harmonisation which is too restrictive (see, by analogy, Case C‑251/05 Talacre Beach Caravan Sales [2006] ECR I‑6269, paragraph 22, and Case C‑309/06 Marks & Spencer [2008] ECR I‑2283, paragraph 24).

38In that regard, the Republic of Poland points out that, from the stage of the administrative procedure, it has made clear that maintaining a reduced VAT rate for the goods at issue is extremely important from the point of view of economic growth, but especially from the point of view of solutions to increase the birthrate in Poland in an effective way.

Findings of the Court

39It is not disputed that, on expiry of the deadline laid down in the reasoned opinion, the Republic of Poland was applying a reduced VAT rate of 7% to the goods at issue and that those goods do not fall within the categories of goods and services listed in Annex III to Directive 2006/112, which, pursuant to Article 98 of that directive, are the only ones to which reduced rates may be applied. It is also not disputed that the Act of Accession does not provide for a derogation in that regard.

40The Republic of Poland claims, however, that that reduced rate of taxation may be allowed under Article 115 of Directive 2006/112. The Commission submits, primarily, that that provision applies only to States which were members of the Community at the time Directive 92/77 was adopted and, in the alternative, that the conditions for the application of Article 115 of the directive are not met in the present case.

41It should be noted, at the outset, that Article 115 of Directive 2006/112 is a transitional provision and was initially introduced into the Sixth Directive as Article 28(2)(d) by Directive 92/77 which, by derogation, authorises the Member States, which were required to adapt their VAT systems to the harmonised number and level of VAT rates, to maintain the reduced rates of VAT which they applied to certain goods and services provided that those rates were applicable in those Member States at 1 January 1991. As it is a case of derogating and transitional arrangements, Article 115 of Directive 2006/112 must be strictly interpreted (see, by analogy, Case C‑462/05 Commission v Portugal [2008] ECR I‑4183, paragraph 54).

42In that regard, it is sufficient to note that the derogation provided for in Article 115 is subject to the fulfilment of two cumulative conditions for its application. The first requires that the Member State concerned was applying, at 1 January 1991, VAT within the meaning of Directive 2006/112 or, at the very least, a taxation system with similar characteristics to the common system of VAT. The second requires that, in the context of that taxation, supplies of the goods and services referred to in Article 115 were subject to a reduced rate at 1 January 1991.

43As regards the first condition, the Republic of Poland stated that it first introduced the common system of VAT into its national legislation by means of the Law on VAT. It must therefore be assessed whether the Polish tax provided for in the Law of 16 December 1972, as in force at 1 January 1991, may, at the very least, be regarded as a tax equivalent to VAT.

44It should be noted, in that regard, that the principle of the common system of VAT is 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. 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. The procedure for deduction is so arranged that taxable persons are authorised to deduct from the VAT for which they are liable the input VAT already charged on the goods or services and that the tax is charged, at each stage, only on the added value and is ultimately borne by the final consumer (see Case C‑475/03 Banca popolare di Cremona [2006] ECR I‑9373, paragraphs 21 and 22).

45The Court has established the essential characteristics of VAT. Notwithstanding certain differences of wording, it is apparent from the case-law that there are four such characteristics: (i) the tax applies generally to transactions relating to goods or services; (ii) it is proportional to the price charged by the taxable person in return for the goods and services which he has supplied; (iii) the tax 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; and (iv) the amounts paid during the preceding stages of the process are deducted from the tax payable by a taxable person, with the result that that tax applies, at any given stage, only to the value added at that stage and the final burden of that tax rests ultimately on the consumer (see Banca popolare di Cremona, paragraph 28, and Joined Cases C‑283/06 and C‑312/06 KÖGÁZ and Others [2007] ECR I‑8463, paragraph 37).

46It is sufficient that a tax does not display one of those essential characteristics for it not to be regarded as equivalent to VAT (see, to that effect, the order of 5 February 2009 in Case C‑119/08 UAB Mechel Nemunas, paragraph 37).

47In the present case, as regards the second essential characteristic of VAT, it must be observed that, whereas VAT is levied on individual transactions at the marketing stage and its amount must be proportional to the price of the goods or services supplied (KÖGÁZ and Others, paragraph 39), it is apparent from Articles 4 and 5 of the Law of 16 December 1972 that the Polish tax in force at 1 January 1991 was, by contrast, based on the gross turnover made by the taxable person during a given period.

48Since the Polish tax is thus calculated on the basis of periodic turnover, it was not possible to determine the precise amount of that charge which may be being passed on to the customer when each sale of goods is effected, and thus the condition that this amount should be proportional to the price charged by the taxable person was not satisfied (see KÖGÁZ and Others, paragraph 40).

49Next, concerning the fourth essential characteristic of VAT, it must be observed that, whereas the Community VAT scheme provides for the deduction of the tax due or paid in respect of any goods or services used for the purposes of taxed transactions so that the tax is charged solely on the value added at a given stage of the production or distribution process, it is apparent from the information supplied by the parties in response to the written questions addressed to them by the Court and the discussion at the hearing that the Law of 16 December 1972 did not provide for the right to deduct the tax paid at an earlier stage, but authorised only the deduction of general tax on turnover incurred at a later stage on certain materials. That tax thus did not apply to the value added to the goods and services, but to the total income received.

50The Republic of Poland submits nevertheless that Article 9 of the Regulation of the Finance Minister of 17 April 1990 (Dz. U No 27, item 156), exempted, in principle, from turnover tax the sale of provisions, capital goods and finishing goods.

51However, although it is correct to state that the existence of differences in the method for calculating the deduction of tax already paid does not deprive a tax of an essential characteristic of VAT if such differences are in fact technical in nature and do not prevent that tax from operating in essentially the same way as VAT, the same is not true of a tax levied on production in such a way that it is not certain that it will ultimately be borne, like a tax on consumption such as VAT, by the final consumer (Banca popolare di Cremona, paragraph 31).

52In the present case, by reason, in particular, of the opaque interplay between the various forms of exemption or cascade taxation systems, it cannot be certain that the Polish turnover tax was ultimately born by the final consumer in a way similar to a tax on consumption such as VAT nor that it led to the same result as that tax.

53It is apparent from the above considerations that the turnover tax applicable in Poland at 1 January 1991 did not display the essential characteristics of VAT.

54Since the Republic of Poland was not applying, at 1 January 1991, VAT within the meaning of Directive 2006/112, nor a taxation system displaying the essential characteristics of VAT, the conditions for the application of Article 115 of Directive 2006/112 are not satisfied.

55Consequently, the Republic of Poland should have applied the normal rate of VAT to the goods at issue.

56Finally, in so far as the Republic of Poland seeks to raise an independent ground of defence, arguing that the application of a reduced rate of VAT to the goods at issue aims to bring about an increase in birthrate in Poland and contribute to accelerating the rhythm of economic growth within the spirit of the Lisbon Strategy, it is sufficient to note that such an argument of a socio-political nature, although it may possibly justify the grant by the Council of the European Union of a derogation in the form of an amendment to Directive 2006/112, cannot, by contrast, justify, from a legal point of view, that Member State’s infringement of Article 98(2) of Directive 2006/112 in the context of these infringement proceedings.

57In those circumstances, it must be found that, by applying a reduced VAT rate of 7% to supplies, import and intra-Community acquisition of clothing and clothing accessories for babies and of children’s footwear, the Republic of Poland has failed to fulfil its obligations under Article 98 of Directive 2006/112, in conjunction with Annex III thereto.

Costs

58Under Article 69(2) of the Rules of Procedure, the unsuccessful party is to be ordered to pay the costs if they have been applied for in the successful party’s pleadings. Since the Commission has applied for costs to be awarded against the Republic of Poland and the latter has been unsuccessful, the Republic of Poland must be ordered to pay the costs.

Operative part

On those grounds, the Court (Third Chamber) hereby:

1. Declares that, by applying a reduced value added tax rate of 7% to supplies, import and intra-Community acquisition of clothing and clothing accessories for babies and of children’s footwear, the Republic of Poland has failed to fulfil its obligations under Article 98 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, in conjunction with Annex III thereto;

Signatures

2. Orders the Republic of Poland to pay the costs.

[Signatures]

Notes

* Language of the case: Polish.

OPINION OF ADVOCATE GENERAL

KOKOTT

delivered on 10 June 2010 1(1)

Case C‑49/09

European Commission

v

Republic of Poland

(Treaty infringement proceedings – Value added tax – Directive 2006/112/EC – Temporal application of transitional provisions to later acceding Member States – Application of a reduced rate – Clothing and clothing accessories for babies and children’s footwear)

I – Introduction

1The Commission finds fault with the transposition by Poland of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (2) (‘Directive 2006/112’). The case specifically concerns the reduced VAT rate of 7% on clothing and clothing accessories for babies and children’s footwear that applies in Poland. In the Commission’s opinion, by applying that reduced rate of VAT Poland is in breach of Article 98 of Directive 2006/112 in conjunction with Annex III to that directive. Poland does not deny that the reduced rate applies but takes the view that it is justified, both on socio-political grounds and on the basis of Article 115 of Directive 2006/112.

2Decisive for the outcome of the case is primarily the temporal application of Article 115 of Directive 2006/112 to Poland. Article 115 of Directive 2006/112 allows Member States which, at 1 January 1991, were applying a reduced rate of VAT to inter alia children’s clothing and children’s footwear to continue to apply such rate. However, Poland was not yet a Member State of the European Community on the date stated in Article 115 of Directive 2006/112, nor when the corresponding preceding rule in the Sixth Directive (3) was introduced. The question is, therefore, whether Poland can nevertheless rely on that provision and continue to apply a special rule in existence on 1 January 1991, or whether only Article 98 in conjunction with Annex III and Article 128 of Directive 2006/112 and the rules contained in the Act of Accession should be relevant.

II – Legislative background

A – Community law

1. 2003 Act of Accession

3Article 24 of the 2003 Act of Accession (4) reads as follows:

‘The measures listed in Annexes V, VI, VII, VIII, IX, X, XI, XII, XIII and XIV to this Act shall apply in respect of the new Member States under the conditions laid down in those Annexes.’

4Annex XII to the Act of Accession contains the list of acquis communautaire attributable to Poland. Point 1 of Chapter 9 – Taxation – of that annex states that the rules on the common system of value added tax are applicable:

‘31977 L 0388: 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 L 145, 13.6.1977, p. 1), as last amended by:

– 32002 L 0038: Council Directive 2002/38/EC of 7.5.2002 (OJ L 128, 15.5.2002, p. 41).

(a) By way of derogation from Article 12(3)(a) of Directive 77/388/EEC, Poland may (i) apply an exemption with refund of tax paid at the preceding stage on the supply of certain books and specialist periodicals, until 31 December 2007, and (ii) maintain a reduced rate of value added tax of not less than 7% on the supply of restaurant services until 31 December 2007 or until the end of the transitional period referred to in Article 28[1] of the Directive, whichever is the earlier.

(b) By way of derogation from Article 12(3)(a) of Directive 77/388/EEC, Poland may maintain (i) a reduced rate of value added tax of no less than 3% on foodstuffs (including beverages but excluding alcoholic beverages) for human and animal consumption; live animals, seeds, plants and ingredients normally intended for use in preparation of foodstuffs; products normally intended to be used to supplement or substitute foodstuffs; and on the supply of goods and services of a kind normally intended for use in agricultural production, but excluding capital goods such as machinery or buildings, referred to in points 1 and 10 of Annex H to the Directive, until 30 April 2008, and (ii) a reduced rate of value added tax of no less than 7% on the supply of services, not provided as part of a social policy, for construction, renovation and alteration of housing, excluding building materials, and on the supply before first occupation of residential buildings or parts of residential buildings as referred to in Article 4(3)(a) of the Directive until 31 December 2007.

(c) For the purposes of applying Article 28(3)(b) of Directive 77/388/EEC, Poland may maintain an exemption from value added tax on international transport of passengers referred to in point 17 of Annex F to the Directive, until the condition set out in Article 28(4) of the Directive is fulfilled or for as long as the same exemption is applied by any of the present Member States, whichever is the earlier.’

2. Directive 2006/112

5Article 96 of Directive 2006/112 provides:

‘Member States shall apply a standard rate of VAT, which shall be fixed by each Member State as a percentage of the taxable amount and which shall be the same for the supply of goods and for the supply of services.’

6Article 97(1) of Directive 2006/112 states that the standard rate of VAT from 1 January 2006 until 31 December 2010 may not be less than 15%.

7Article 98 of Directive 2006/112 states:

‘1. Member States may apply either one or two reduced rates.

2. The reduced rates shall apply only to supplies of goods or services in the categories set out in Annex III.

…’

8Under Article 99(1) of Directive 2006/112 the reduced rates are to be fixed as a percentage of the taxable amount, and may not be less than 5%.

9Chapter 4 of Title VIII of Directive 2006/112 (Articles 109 to 122) determines the circumstances in which, pending introduction of a definitive VAT arrangement at Community level, the Member States can apply exemptions with deductibility of the VAT paid at the preceding stage or apply reduced rates that differ from the general rules.

10Article 114(1) of Directive 2006/112 provides as follows in this context:

‘1. Member States which, on 1 January 1993, were obliged to increase their standard rate in force at 1 January 1991 by more than 2% may apply a reduced rate ... to the supply of goods and services in the categories set out in Annex III.

The Member States referred to in the first subparagraph may also apply such a rate to ... children’s clothing, children’s footwear and housing.’

11Article 115 of Directive 2006/112 provides:

‘Member States which, at 1 January 1991, were applying a reduced rate to … children’s clothing, children’s footwear or housing may continue to apply such a rate to the supply of those goods or services.’

12Article 115 of Directive 2006/112 adopts verbatim the provision in Article 28(2)(d) of the Sixth Directive, as amended by Council Directive 92/77/EEC of 19 October 1992. (5)

13Chapter 5 of Title VIII – Temporary provisions – contains, in Articles 123 to 130, rules which grant certain Member States which acceded to the European Union on 1 May 2004 an exemption with deductibility of VAT paid at the preceding stage in respect of the supply of certain items and permits a reduced rate to be applied to certain items.

14Following the provisions in the Act of Accession, Article 128 of Directive 2006/112 lays down the following special provisions for Poland:

‘1. Poland may, until 31 December 2007, grant an exemption with deductibility of VAT paid at the preceding stage in respect of the supply of certain books and specialist periodicals.

2. Poland may, until 31 December 2007 or until the introduction of definitive arrangements, as referred to in Article 402, whichever is the earlier, continue to apply a reduced rate of not less than 7% to the supply of restaurant services.

3. Poland may, until 30 April 2008, continue to apply a reduced rate of not less than 3% to the supply of foodstuffs as referred to in point (1) of Annex III.

4. Poland may, until 30 April 2008, continue to apply a reduced rate of not less than 3% to the supply of goods and services of a kind normally intended for use in agricultural production, but excluding capital goods such as machinery or buildings, as referred to in point (11) of Annex III.

5. Poland may, until 31 December 2007, continue to apply a reduced rate of not less than 7% to the supply of services, not provided as part of a social policy, for construction, renovation and alteration of housing, excluding building materials, and to the supply before first occupation of residential buildings or parts of residential buildings, as referred to in point (a) of Article 12(1).’

B – National law

15Under Article 41 of the Polish Law on value added tax of 11 March 2004 (‘the Polish VAT Law’) the standard rate of VAT is 22%, although derogations are permitted. Accordingly, Article 41(2) of the Polish VAT Law provides for a reduced rate of VAT of 7% on the goods and services specified in Annex III.

16Annex III to the Polish VAT Law lists under item 45 clothing and clothing accessories for babies and, under item 47, children’s footwear.

III – Pre-litigation procedure and forms of order sought

17On 23 March 2007, the Commission sent a letter of formal notice to the Republic of Poland. In that letter it raised the objection that Poland was applying a reduced rate of VAT to clothing and clothing accessories for babies and to children’s footwear contrary to Article 98 of Directive 2006/112 in conjunction with Annex III to that directive.

18Poland commented on the facts in its reply of 22 May 2007. As the arguments put forward by the Republic of Poland in its defence did not convince the Commission it sent Poland a reasoned opinion on 1 February 2008 giving that Member State a period of two months in which to comply with Community law requirements.

19Poland replied in a communication of 31 March 2008. The Commission maintained its view and, by a document dated 2 February 2009, received at the Court on 3 February 2009, brought the present action seeking that the Court:

– declare that, by applying a reduced VAT rate of 7% to supplies, the import and the intra-Community acquisition of clothing and clothing accessories for babies and of children’s footwear on the basis of Article 41(2) of the Law on Goods and Services Tax of 11 March 2004, in conjunction with items 45 and 47 of Annex III to that Law, the Republic of Poland has failed to fulfil its obligations under Article 98 of Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, in conjunction with Annex III thereto;

– order the Republic of Poland to pay the costs of the proceedings.

20Poland contends that the action should be dismissed and the Commission ordered to pay the costs of the proceedings.

IV – Legal analysis

21Under Article 96 of Directive 2006/112 the Member States apply the standard rate of VAT fixed by each Member State as a percentage of the taxable amount and which is the same for the supply of goods and for the supply of services.

22Article 98 of the directive, on the other hand, permits the application of either one or two reduced rates to the categories of goods and services set out in Annex III to the directive. The supply of clothing and clothing accessories for babies and of children’s footwear taxed by Poland at a reduced rate of 7% (‘the goods at issue’) are undeniably not listed in Annex III. Consequently, Article 98 of the directive does not permit the supply of the goods at issue to be charged at a reduced rate of VAT.

23However, Poland is relying on Article 115 of Directive 2006/112. This states that all Member States which, at 1 January 1991, were applying a reduced rate to children’s clothing, children’s footwear or housing may continue to apply such a rate.

24The Commission refuses to accept that this provision should apply to Poland. It argues that the transitional provision was originally introduced into the Sixth Directive as Article 28(3)(b) by Directive 92/77 and is directed only at the States that were already members of the Community when Directive 92/77 was adopted. The Commission also points out that derogations run contrary to the harmonisation objective of the directive and are therefore to be interpreted narrowly. Member States that acceded to the European Union later on can rely only on derogations provided for in the Act of Accession. The 2003 Act of Accession does not permit Poland to apply a reduced rate of VAT that derogates from the general system in the case of the supply of the goods at issue here.

25Poland contends, on the other hand, that the wording of Article 115 of Directive 2006/112 does not prevent its application to Poland. If the application of the provision to Poland were to be excluded it would be discriminated against as compared to other Member States. What is more, the application of the derogation is justified on socio-political grounds.

A – Application of the provision to Poland

26Article 24 of the Act of Accession, which is headed ‘Transitional measures’ reads as follows: ‘The measures listed in Annexes ... XII ... to this Act shall apply in respect of the new Member States under the conditions laid down in those Annexes’.

27Point 1 of Chapter 9 (‘Taxation’) of Annex XII lists inter alia the Sixth Directive 77/388, as last amended by Directive 2002/38/EC. This also incorporates all amendments to the directive adopted between 1977 and 2002. Point 1(a) to (c) then lists the derogations from the Sixth Directive applicable to Poland, that is to say derogations from Article 12(3)(a) and Article 28(3)(b) of the directive. The Act of Accession does not make any provision for derogations from Article 28(2)(d) of the Sixth Directive.

28In the absence of specific limits or reservations the State which joins accepts all the rights and obligations resulting from the acquis communautaire. (6) Hence, derogations such as Article 28(2)(d) of the Sixth Directive and Article 115 of Directive 2006/112 are also applicable, in principle, to the Member States that acceded in 2004 unless any provisions to the contrary are contained in the Act of Accession. This is not the case as regards the goods at issue here.

29This is not precluded by the fact that Poland was not a member of the Community on the date of adoption of Directive 92/77, which originally introduced the said provision. The specific objective of the rules on adoption of the acquis communautaire in the Act of Accession was to extend the application of legal instruments adopted prior to the accession of the Member State concerned so that they also applied to that Member State. It is not apparent that Directive 92/77 was excluded in any way from the acquis communautaire, which Poland adopted by acceding to the Community.

30However, the Commission would seem to be concluding from Article 24 of the Act of Accession in conjunction with the provisions in the aforementioned Annex that only the normal regime in the Sixth Directive, as it were, has become part of the acquis adopted. It argues that special arrangements were only included in so far as they were listed in the annex and then only in the form of adaptation stated there.

31There is no basis for this interpretation to be found in either the wording or structure of the provisions of the Act of Accession, however. Indeed, point 1(a) to (c) of Chapter 9 (‘Taxation’) of Annex XII to the Act of Accession expressly provides for derogations from the exceptions stated in the Sixth Directive. This approach to regulation is based on the premis that derogations apply, in principle, to the acceding States. This is also supported by the wording of point 1(c) of Chapter 9 of Annex XII to the Act of Accession, which reads: ‘For the purposes of applying Article 28 Poland may maintain an exemption from value added tax on international transport of passengers …’ [emphasis added by the author].

32If the derogations were not to apply ab initio to the new Member States, however, they would not have needed to be modified in the Act of Accession. It would then have been necessary to introduce quite new derogations in favour of the acceding States.

33There can be no question, on grounds of legal certainty, of concluding, so to speak, from silence in the Act of Accession that certain provisions in the Sixth Directive, which according to their wording have unlimited application, should not be capable of application to the acceding Member States. In order to achieve clarity in this respect the Act of Accession would have had to not only list the amended derogations applicable but also all of the derogations that were not to apply in their entirety to the acceding States.

34The Commission is ultimately also relying in support of its argument on the rule on reduced taxation of housing. The taxation of services in connection with the construction, renovation and alteration of housing is regulated with regard to Poland in point 1(b) of Chapter 9 of Annex XII to the Act of Accession and in Article 128(5) of Directive 2006/112. In addition, Article 115 of the directive permits Member States to apply a reduced rate to housing where they were applying such relief on 1 January 1991. If that provision were also to apply to the later acceding States, it argues, Poland would have a double legal basis for the VAT reduction.

35I do not find this argument convincing, however.

36Article 128 of Directive 2006/112 is a special provision for Poland derogating from the general provision in Article 115 and replacing it with regard to the application of the reduced rate for housing construction. Whereas Article 115 of Directive 2006/112 permits the application of a reduced rate to housing for an unlimited period of time provided that the rate was being applied on 1 January 1991, the special rule in the Act of Accession, which was adopted in Article 128 of Directive 2006/112, restricts the temporal application of a reduced rate until 31 December 2007. However, the derogation for Poland is changed in Article 128 of the directive in that it is not linked to the existence of such a reduction on 1 January 1991 but also applies to reduced rates of tax that were introduced later on.

37Since, unlike the position with regard to housing, there is no specific rule on the supply of children’s clothing and children’s footwear, the derogation in Article 115 of Directive 2006/112 applicable to all of the Member States remains unchanged in this respect. If the parties to the Treaty had also wanted to change or even completely exclude the application of that provision for Poland it would have needed a corresponding provision to be included in the Act of Accession.

38The acquis communautaire that Poland adopted on its accession does therefore also immediately extend per se to the derogation in Article 115 of Directive 2006/112.

39The question is, however, whether there is anything in the content and telos of Article 115 to indicate that the provision should nevertheless not apply to a State in Poland’s situation because it was not already a Member State of the Community on 1 January 1991.

40As the Court observed in Optimus–Telecomunicações, however, in the case of accession, a reference to a date laid down in Community law, in the absence of a provision to the contrary in the Act of Accession or some other Community document, applies equally to the State which is acceding, even if that date is earlier than the date of its accession. (7)

41As already stated, the Act of Accession does not contain any mention of the fact that Article 28(2)(d) of the Sixth Directive (or Article 115 of Directive 2006/112) does not apply to the States that are acceding.

42Nor is anything different to be concluded from the wording of the said provisions themselves. They state that Member States which were already applying a reduced rate to the goods at issue on 1 January 1991 can continue to apply it. The provision does not require the Member State concerned to also have been a Member State on the date of reference, namely 1 January 1991, even though use is definitely made in Directive 2006/112 of such temporal specification of a particular date for Member States. (8) The absence of such a temporal specification indicates that, in principle, Article 115 also applies to Member States that only later accede to the European Union if they applied such a rule on the date of reference.

43On a purely literal interpretation, therefore, the provision does apply to Poland. Where the wording of a Community law provision is clear and is not open to contradictory interpretations in the different language versions, a literal interpretation is a strong indication as to the correct meaning of the provision. (9)

44The interpretation conclusion arrived at above with regard to the application of the provision to Poland must also, however, be gauged against the objective of the directive pursued by the Community legislator, which was to create a common system of value added tax.

45As the Court has repeatedly held, (10) the provisions of the Sixth Directive laying down exceptions to the general principle that VAT is to be levied on all goods or services supplied for consideration by a taxable person are to be interpreted strictly.

46Article 115 of Directive 2006/112 constitutes a derogation which perpetuates a state of affairs conflicting with the objective of the directive, that is to say the application of reduced rates of VAT to turnover other than that provided for in the directive. It is therefore doubtful whether the findings arrived at by the Court in Optimus–Telecomunicações(11) in relation to Council Directive 69/335/EEC of 17 July 1969 concerning indirect taxes on the raising of capital (12) are directly applicable to the present configuration. In that case, unlike the present case, the issue was the linking of the legal position to a date prior to accession in order to achieve a legal situation closer to the harmonisation objective of the directive.

47Nor does a narrow interpretation of the provision preclude its application to Poland, however. The directive is based on a procedure in stages, since the harmonisation of turnover taxes leads in Member States to alterations in tax structure and appreciable consequences in the budgetary, economic and social fields. (13) Other Member States may also currently apply a reduced rate to the goods at issue, so that the objective of complete harmonisation has not yet been achieved in every case, irrespective of the application of the provision to Poland.

48Furthermore, application of the derogations to Poland is also suggested by their spirit and purpose: despite advancing harmonisation, the citizens of Member States are still to be able to benefit from certain social advantages to which they have adapted. The directive expressly allows the perpetuation of this situation, which in itself runs contrary to the harmonised system, in order to avoid social upheaval.

49Immediate abolition of the reduced rate of VAT on children’s clothing and children’s footwear would have led to an abrupt increase in the burden of VAT on families with children. In order to avoid this the Member States were granted a concession in 1992 allowing them to retain their socio-politically motivated reduction in VAT on the supply of those goods, which had been in existence on the relevant date. On the date of its accession Poland was in a position comparable with that of States that had already been members of the Community in 1992.

50This might admittedly bring about a competitive advantage to Polish economic operators because their turnover would receive a fiscal benefit. However, their position would be no different to that of taxpayers in other Member States that had already applied a reduced rate in 1991. Indeed, failure to apply the derogation to States acceding at a later date would result in those States receiving unequal treatment. They would, in principle, be subject to greater harmonisation than those that were Member States on the date of adoption of the legislation.

51In the opinion of the Commission such greater harmonisation is justified in relation to new Member States because the later acceding Member States also adopted the acquis communautaire at a later stage. Application of the special arrangement to the Member States acceding in 2004 would diminish the degree of harmonisation achieved.

52In so far as Poland has applied a corresponding reduced rate of VAT to the goods at issue since 1 January 1991, however, it is in the same position as the former Member States, the only difference being that such taxation in Poland was initially based solely on national law whilst the old Member States were allowed to continue to apply their corresponding arrangements by virtue of the authorisation given in the directive. Application of Article 115 of Directive 2006/112 to Poland in these circumstances leads neither to a reduction in the degree of harmonisation nor to increased harmonisation; it simply maintains the status quo.

53Although it might appear desirable to abolish the numerous derogations permitted by the directive, the abolition should affect all Member States in the same way where their situation is comparable with regard to any former arrangements.

54The interim conclusion to be arrived at is therefore that Article 115 of Directive 2006/112 also affords Poland the right to continue to apply a reduced rate to the supply of clothing and clothing accessories for babies and of children’s footwear if Poland was applying it on 1 January 1991.

1. Situation provided for in Article 115 of Directive 2006/112

55It is therefore necessary to examine whether the conditions laid down in Article 115 of Directive 2006/112 for the application of a reduced rate to the supply of the goods at issue here are indeed satisfied in Poland.

56The Commission has not lodged any submissions on this question in the application originating the proceedings – even in the alternative.

57The Polish Government stated in its defence that a reduced rate of VAT applied to children’s clothing and children’s footwear in Poland on 1 January 1991 pursuant to the provisions of the Law on value added tax of 16 December 1972. The system of value added tax that was introduced as a result of the Law of 8 January 1993 on Goods and Services Tax was modelled on the Community system of VAT. In applying that legislation Poland has consistently applied a VAT rate of 7% to the goods at issue.

58The Commission has waived its right to submit a pleading in reply because the defendant has not submitted any new arguments and the Commission has already gone into all of the grounds of defence raised to date. Poland’s submission could therefore be deemed conceded by the Commission. Any later submission by the Commission would therefore, in principle, have to be rejected under Article 42(2) of the Rules of Procedure as being out of time.

59However, in certain circumstances the Court has to examine the credibility of the defence submitted by the Polish Government even if the Commission has not disputed that submission. In order therefore to obtain further clarification on the legal position in Poland since 1 January 1991 the Court asked both parties to lodge written observations on whether the conditions governing the application of Article 115 of Directive 2006/112 in Poland had been fulfilled. They were to explain, in particular, the extent to which the tax levied in Poland on 1 January 1991 could be considered value added tax within the meaning of Article 115 of the directive and whether a reduced rate applied at that time to the goods in question here.

60The explanations provided by the Polish Government and the Commission in the course of that clarification measure by the Court cannot be considered pleas in law out of time under Article 42(2) of the Rules of Procedure and must therefore be taken into consideration in the following examination of the credibility of the Polish defence pleading.

61It is therefore necessary to examine, first, whether the Polish turnover tax levied on 1 January 1991 on the supply of the goods at issue could be characterised as VAT for the purposes of Directive 2006/112. Secondly, it is necessary to clarify whether a reduced rate of tax has been applied since the relevant date.

B – Characterisation of the tax as VAT for the purposes of the directive

62The Court of Justice has laid down the following essential characteristics of the common system of value added tax in its case-law on Article 33(1) of the Sixth Directive (now Article 401 of Directive 2006/112): (14)

– the value added tax applies generally to all 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 value added 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.

63As soon as a national tax fails to display one of these characteristics Article 3(1) of the Sixth Directive does not preclude its charge alongside value added tax. (15)

64However, this is to be considered in the context of the provision in Article 33(1). The spirit and purpose of that provision is to preclude the distortions of competition and breaches of the functioning of the single market which would arise if a national tax with the same characteristics were to be raised alongside harmonised value added tax – that is to say a parallel value added tax, as it were. (16)

65The application of Article 115 of Directive 2006/112 to a Member State in Poland’s situation is, by contrast, contingent only on the taxation of children’s clothing and children’s footwear being a tax on consumption similar to harmonised value added tax and on the social benefit resulting from the reduced rate of that tax consequently having comparable significance to the consumer as the charge to value added tax within the meaning of Directive 2006/112 at a reduced rate.

66It must therefore be a general tax on the supply of the goods at issue the amount of which is proportional to the price and the final burden of which rests ultimately on the end consumer. On the other hand, the questions whether and in what manner the neutrality of the tax is assured at the various stages of the commercial chain prior to the supply to the end consumer are not issues of vital significance.

67It is apparent in this connection from the information regarding the legal position in Poland, which the Court has received from the written replies to its question and at the oral hearing, that the turnover tax charged on 1 January 1991 was a general tax that was assessed according to the value of the supply. The tax was admittedly levied on the basis of two laws – one on the taxation of supplies by State undertakings and one on the taxation of supplies by private undertakings. In both cases, however, the tax was configured in the same way.

68In so far as the Commission in this context raises the objection that certain supplies were not subject to the tax, such as artistic or scientific work, for instance, this does not preclude the general nature of the tax. Directive 2006/112 ultimately also provides numerous tax exemptions based on socio-political grounds.

69Nor is it relevant in this context that it was not until 1993 that Poland introduced a system of value added tax that, like the system under the directive, guaranteed fiscal neutrality of intermediate transactions until the supply is made to the end consumer by way of an input tax deduction mechanism. Before that, Poland applied a system of exemption for inputs in order to avoid the cumulation of VAT at different stages of the commercial chain.

70As already mentioned, an evaluation of the tax relief depends solely on the end consumer perspective. From that point of view it is irrelevant what approach to regulation is employed to ensure that he has to pay a tax that is proportional to the added value applicable to the goods in the supply chain. What is more, in a few cases the directive also allows the Member States to apply certain derogations from the general machinery for the deduction of input tax. (17)

71It is also necessary to examine whether a reduced rate of tax has been applied since 1 January 1991 to the supply of the goods at issue here.

72It is to be concluded from the information available that the supplies in question were initially totally exempt from tax, that a tax rate of 5% was applied from 4 May 1992 to 16 December 1992 and that the rate of tax since then has been 7%. Furthermore, the normal rate was 20% or 22% respectively.

73In that connection it must be noted, first of all, that the application of a tax exemption can also, in a wider sense, be equated with taxation at a rate of tax reduced to zero. The directive itself equates the zero rating found in some Member States, that is to say exemption with entitlement to deduct input tax, with the application of a reduced rate of tax that is lower than the minimum rates provided for under the directive. (18) The exemption applicable in Poland on 1 January 1991 for the supply of clothing and clothing accessories for babies and of children’s footwear can therefore also be considered the application of a reduced rate within the meaning of Article 115 of Directive 2006/112. (19)

74Nor is reliance on Article 115 precluded by the fact that Poland has not consistently applied a reduced rate in the same amount but charged the rate in two stages from 0% to its present 7%.

75In that context, the Court has held that any national measure adopted after a date laid down by Community law is not, by that fact alone, automatically excluded from the derogation laid down in the Community measure in question. (20) Where, after the relevant date, the legislation of a Member State is amended so as to reduce the scope of existing exemptions and thereby brings itself into line with the objective of Directive 2006/112, that legislation must be considered to be covered by the underlying derogation. (21)

76Consequently, no objection can be raised if Poland has reduced the amount of the reduction since 1991 and thereby brought its taxation more into line with the normal rate of tax on the turnover in question provided for, in principle, by the directive.

77In conclusion, the Republic of Poland is authorised under Article 115 of Directive 2006/112 to apply a tax rate of 7% on the supply of clothing and clothing accessories for babies and of children’s footwear. The proceedings brought by the Commission alleging that the Republic of Poland has infringed Article 98 of Directive 2006/112 must therefore be unsuccessful.

V – Costs

78Under Article 69(2) of the Rules of Procedure the unsuccessful party is to be ordered to pay the costs if they have been applied for in the successful party’s pleadings. Since the Republic of Poland has applied for costs to be awarded against the Commission and the latter has been unsuccessful, the Commission should be ordered to pay the costs.

VI – Conclusion

79I therefore propose that the Court should:

1. Dismiss the action;

2. Order the European Commission to pay the costs.

Notes

(1) Original language: German.

(2) OJ 2006 L 347, p. 1.

(3) The rule was formerly contained in Article 28(2)(d) of 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 92/77/EEC of 19 October 1992 supplementing the common system of value added tax and amending Directive 77/388/EEC (approximation of VAT rates) (‘the Sixth Directive’).

(4) Act concerning the conditions of accession of the Czech Republic, the Republic of Estonia, the Republic of Cyprus, the Republic of Latvia, the Republic of Lithuania, the Republic of Hungary, the Republic of Malta, the Republic of Poland, the Republic of Slovenia and the Slovak Republic and the adjustments to the Treaties on which the European Union is founded (OJ 2003 L 236, p. 33).

(5) Cited in footnote 3.

(6) See too the Opinion delivered by Advocate General Tesauro on 7 May 1991 in Case C-35/90 Commission v Spain [1991] ECR I‑5073, point 6.

(7) Case C‑366/05 Optimus–Telecomunicações [2007] ECR I‑4985, paragraph 32.

(8) See Article 379(1) of Directive 2006/112, which is based on point 2(m) of Part 9 of Annex XV to the Act on the accession of Austria, Finland and Sweden (OJ 1994 C 241, p. 335 and OJ 1995, L 1, p. 1).

(9) See the Opinion delivered by Advocate General Sharpston on 25 January 2007 in Optimus–Telecomunicações, point 45.

(10) See Joined Cases C‑308/96 and C‑94/97 Madgett and Baldwin [1998] ECR I‑6229, paragraph 34; Case C‑384/01 Commission v France [2003] ECR I‑4395, paragraph 28; Joined Cases C‑394/04 and C‑395/04 Ygeia [2005] ECR I‑10373, paragraphs 15 and 16; and Case C‑251/05 Talacre Beach Caravan Sales [2006] ECR I‑6269, paragraph 23.

(11) Cited in footnote 7.

(12) OJ, English Special Edition 1969 (II), p. 412, as amended by Council Directive 85/303/EEC of 10 June 1985 (OJ 1985 L 156, p. 23).

(13) See recital 6 in the preamble to Directive 2006/112.

(14) Case C‑475/03 Banca popolare di Cremona [2006] ECR I‑9373, paragraph 28, and Joined Cases C‑283/06 and C‑312/06 KÖGÁZ and Others [2007] ECR I‑8463, paragraph 37.

(15) Banca popolare di Cremona (paragraph 27) and KÖGÁZ and Others (paragraph 36).

(16) See in this context Banca popolare di Cremona (paragraphs 21 and 24) and KÖGÁZ and Others (paragraphs 29 and 33).

(17) See, for example, Article 175(2)(2), Article 180 and Article 372 of Directive 2006/112.

(18) See, for example, Article 28(2)(a) and (b) of the Sixth Directive and Articles 110 and 113 of Directive 2006/112. For more detail on the concept of zero rating see my Opinion of 4 May 2006 delivered in Case C‑251/05 Talacre Beach Caravan Sales [2006] ECR I‑6269, points 22 and 23, and my Opinion delivered on 13 December 2007 in Case C‑309/06 Marks & Spencer [2008] ECR I‑2283, point 27.

(19) As already stated, there was as yet no system for the deduction of input tax in force in Poland on that date. A multiple charge to tax was assured by an exemption for inputs, however, so that it is comparable here with zero rating.

(20) See Case C‑460/07 Puffer [2009] ECR I‑3251, paragraph 85, referring to the judgment in Case C‑157/05 Holböck [2007] ECR I‑4051, paragraph 41.

(21) See in this context the judgment in Puffer (paragraph 85) referring to the judgments pronounced on Article 17(6) of the Sixth Directive in Case C‑345/99 Commission v France [2001] ECR I‑4493, paragraph 44, and Case C‑409/99 Metropol and Stadler [2002] ECR I‑81, paragraph 45. See also Case C‑414/07 Magoora [2008] ECR I‑10921, paragraphs 35 to 37.