C-538/08 X Holding and Oracle Nederland

JUDGMENT OF THE COURT (Third Chamber)

15 April 2010 *

In Joined Cases C-538/08 and C-33/09,

TWO REFERENCES for a preliminary ruling under Article 234 EC from the Hoge Raad der Nederlanden (Netherlands) (C-538/08) and from the Gerechtshof Amsterdam (Netherlands) (C-33/09), made by decisions of 14 November 2008 and 20 January 2009 respectively, received at the Court on 4 December 2008 and 26 January 2009, in the proceedings

X Holding BV

v

Staatssecretaris van Financiën (C-538/08),

and

Oracle Nederland BV

* Language of the cases: Dutch.

v

Inspecteur van de Belastingdienst Utrecht-Gooi (C-33/09),

THE COURT (Third Chamber),

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

Advocate General: P. Mengozzi, Registrar: M. Ferreira, Principal Administrator,

having regard to the written procedure and further to the hearing on 3 December 2009,

after considering the observations submitted on behalf of:

— Oracle Nederland BV, by H. Hop, advocaat, and P. Schrijver, belastingadviseur, — the Netherlands Government, by C.M. Wissels, M. de Mol and Y. de Vries, acting as Agents,

— the Greek Government, by O. Patsopoulou, S. Trekli, V. Karra and G. Konstantinos, acting as Agents,

— the European Commission, by D. Triantafyllou and W. Roels, acting as Agents,

after hearing the Opinion of the Advocate General at the sitting on 28 January 2010,

gives the following

Judgment

Legal context and the dispute

1These references for a preliminary ruling concern the interpretation of Article 11(4) of 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; ‘the Second Directive’) and Articles 6(2) and 17(2) and (6) of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment (OJ 1977 L 145, p. 1; ‘the Sixth Directive’).

2The references were made in the context of two actions brought by, on the one hand, X Holding BV (‘X Holding’) against the Staatssecretaris van Financiën (State Secretary for Finance) and, on the other hand, Oracle Nederland BV (‘Oracle’) against the Inspecteur van de Belastingdienst Utrecht-Gooi (Inspector of Taxes, Utrecht-Gooi; ‘the Inspector’), in respect of the right to deduct value added tax (‘VAT’) for certain categories of expenses.

Legal context – Community law

3Article 11(1) of the Second Directive provided:

‘Where goods and services are used for the purposes of his undertaking, the taxable person shall be authorised to deduct from the tax for which he is liable:

(a) the value added tax invoiced to him in respect of goods supplied to him or in respect of services rendered to him;

…’

4Article 11(4) of the Second Directive provided:

‘Certain goods and services may be excluded from the deduction system, in particular those capable of being exclusively or partially used for the private needs of the taxable person or of his staff.’

5Article 2 of the Sixth Directive provides:

‘The following shall be subject to value added tax:

1. the supply of goods or services effected for consideration within the territory of the country by a taxable person acting as such;

…’

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

‘The following shall be treated as supplies of services for consideration:

(a) the use of goods forming part of the assets of a business for the private use of the taxable person or of his staff or more generally for purposes other than those of his business where the value added tax on such goods is wholly or partly deductible;

(b) supplies of services carried out free of charge by the taxable person for his own private use or that of his staff or more generally for purposes other than those of his business.

Member States may derogate from the provisions of this paragraph provided that such derogation does not lead to distortion of competition.’

7According to Article 17(2) and (6) of the Sixth Directive:

‘2. In so far as the goods and services are used for the purposes of his taxable transactions, the taxable person shall be entitled to deduct from the tax which he is liable to pay:

(a) value added tax due or paid in respect of goods or services supplied or to be supplied to him by another taxable person;

…

6. Before a period of four years at the latest has elapsed from the date of entry into force of this Directive, the Council, acting unanimously on a proposal from the Commission, shall decide what expenditure shall not be eligible for a deduction of value added tax. Value added tax shall in no circumstances be deductible on expenditure which is not strictly business expenditure, such as that on luxuries, amusements or entertainment.

Until the above rules come into force, Member States may retain all the exclusions provided for under their national laws when this Directive comes into force.’

Legal context – national law

8Article 2 of the Law of 1968 on turnover tax (Wet op de omzetbelasting 1968; ‘the Law on VAT’) states:

‘A trader may deduct from the tax to be paid on supplies of goods and services the tax charged on supplies of goods and services to him, acquisitions of goods effected by him within the Community and imports of goods intended for him.’

9Article 15(1) of the Law on VAT is worded as follows:

‘The tax referred to in Article 2 which is deductible by the trader shall be:

(a) the tax which, in the period covered by the return, other traders have charged him by means of an invoice issued in accordance with the applicable rules, in respect of supplies of goods and services which they have made to him;

…’

10Article 16(1) of the Law on VAT provides:

‘The deduction referred to in the first subparagraph of Article 15(1) may, in certain cases, be totally or partially excluded by royal decree in order to prevent a situation in which goods and services relating to luxury expenditure, for the purposes of persons who are not traders ... are totally or partially exempted from tax.’

11Article 1 of the Decree of 1968 concerning exclusion from the right to make deductions from turnover tax (Besluit uitsluiting aftrek omzetbelasting 1968; ‘the VAT Decree’), in the version in force from 1 January 1969 to 31 October 1979, provided as follows:

‘1. The deduction referred to in Article 15(1) of the [Law on VAT] is not allowed in cases where, and to the extent to which, the goods and services are used for:

…

(b) giving business gifts or other gifts to persons in relation to whom, if they had been charged or were to be charged the corresponding value added tax, this would be entirely or mainly non-deductible;

(c) providing the staff of the trader with food and drink, accommodation, payment in kind, opportunities for sports and leisure activities, or private transport, or for other personal purposes of the staff concerned.

2. “Business gifts” or “other gifts” shall be understood to mean any supplies provided by the trader in furtherance of business relationships or out of generosity towards others without his receiving consideration or for which he receives consideration which is lower than the acquisition or production costs or, in the case of services, the cost price of such services excluding value added tax.’

12Article 2 of the VAT Decree provided:

‘Where the trader has charged a fee in respect of a supply referred to in Article 1(1)(b) or (c), and therefore owes value added tax, a deduction up to the amount of tax owed by the trader in respect of the supply concerned shall not be excluded.’

13Article 3 of the VAT Decree provided:

‘If the total of the acquisition or production costs or the cost price, excluding value added tax, of all the supplies within the meaning of Article 1(1)(b) or (c) provided by the trader in one financial year in respect of a given person does not exceed 250 [Dutch] guilders (“NLGˮ”), those supplies shall fall outside the scope of the present decree.’

14With effect from 1 January 1980, the VAT Decree was amended to introduce a special scheme for the provision of food and drink; the other provisions of the decree remained unaltered.

15Accordingly, as from 1 January 1980, the provision of food and drink was excluded from Article 1(1)(c) of the VAT Decree. A new Article 3 was inserted, providing for exclusion of the deduction of VAT payable on food and drink. The amount mentioned in the former Article 3 (now Article 4) of the VAT Decree was increased from NLG 250 to NLG 500.

16From that time on, Articles 3 and 4 of the VAT Decree have read as follows:

‘Article 3

1. If goods and services are used by the trader for the purpose of providing food and drink to his staff and he has charged less for this purpose than the amount defined in paragraph 2, deduction shall be excluded up to a maximum of 6% of the difference between that amount and the amount which has been charged.

2. The amount referred to in paragraph 1 shall consist in the acquisition costs of the food and drink, excluding value added tax, plus 25%. If the trader has manufactured the food and drink himself, the acquisition costs of the raw materials used shall be taken into account instead of the acquisition costs of the food and drink.

Article 4

1. If the total of the acquisition or production costs or the cost price, excluding value added tax, of all the supplies within the meaning of Article 1(1)(b) or (c) provided by the trader in one financial year in respect of a given person, and the portion of the difference referred to in Article 3(1) and applicable to that person, does not exceed NLG 500, those services and that portion of the abovementioned difference shall not be taken into account for the purposes of the application of the present decree.

2. In calculating the total referred to in paragraph 1, the difference referred to in Article 3(1) shall not be taken into account if, with regard to the supply of food and drink to the staff of the trader, the deduction was excluded pursuant to Article 3.’

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

Case C-538/08

17During the period between 1 January 1997 and 31 December 1999, X Holding purchased 34 passenger cars from car dealers. It retained the cars for a limited period, after which it sold them.

18X Holding deducted in full the VAT which it had been charged when it purchased those cars. It paid on declaration the VAT charged on the supply of each car.

19On 10 July 2001, an investigation was opened into the accuracy of the VAT returns submitted by X Holding during the years in question. In a report dated 13 November 2002, the finance inspectorate concluded that most of the cars purchased had not been used for the purposes of the company and that X Holding had therefore wrongly claimed deduction of the input VAT paid. Consequently, an additional VAT assessment in the amount of NLG 887 852 (EUR 402 889) was imposed.

20X Holding lodged an objection against that decision. In the course of the subsequent review, the finance inspectorate concluded that 4 of the 34 cars had been purchased and used in the context of the business exclusively for commercial purposes. In those circumstances, the deduction of the input VAT paid on the acquisition of those four cars was allowed. The additional VAT assessment was therefore reduced to NLG 856 605 (EUR 388 710).

21X Holding brought proceedings against that decision before the Gerechtshof Amsterdam (Regional Court of Appeal, Amsterdam). That court, having ruled that the 30 cars which were the subject of an additional VAT assessment had been used for both business and private purposes, dismissed the action.

22The Hoge Raad der Nederlanden (Supreme Court of the Netherlands), hearing the appeal on a point of law brought against the judgment of the Gerechtshof Amsterdam, pointed out that Article 11(4) of the Second Directive allowed Member States to exclude certain goods and services from the deduction system, in particular those capable of being exclusively or partially used for the private needs of the taxable person or those of his staff. That provision therefore allowed Member States to exclude from that system certain categories of motor vehicles, but did not allow them to exclude from it all goods in so far as they are used for the private purposes of the taxable person. Thus, the option provided applies only to maintaining exclusions from deduction with regard to categories of expenditure defined by reference to the nature of the goods or services rather than by reference to the use to which they are put or the manner in which they are used.

23The Hoge Raad der Nederlanden noted that the restriction of the deduction provided for in Article 1(1)(c) of the VAT Decree also applies to goods and services used ‘for other personal purposes of the staff [of the trader]’ and to payments of wages in kind. As the system concerns all goods for private use, the Hoge Raad considered that restriction to be, on the whole, inadequately defined and too broad. However, it noted that the provision describes some categories of goods and services more specifically, in particular goods and services used to provide opportunities for private transport to the staff of the trader.

24The Hoge Raad der Nederlanden therefore stayed proceedings and referred the following questions to the Court of Justice for a preliminary ruling:

‘(1) Must Article 11(4) of the Second Directive and Article 17(6) of the Sixth Directive be interpreted as meaning that a Member State wishing to take advantage of the possibility for which those provisions provide of (retaining) the exclusion of deduction with respect to categories of expenditure which are described as “providing the opportunity for private transport” has satisfied the condition requiring the designation of a category of adequately defined goods and services?

(2) If the answer to the first question is in the affirmative, do Article 6(2) and Article 17(2) and (6) of the Sixth Directive leave room for national legislation such as that at issue, which was adopted before that directive entered into force and under which a taxable person may not deduct in full the VAT paid on the acquisition of certain goods and services which are used partly for business purposes and partly for private purposes of the staff, but may do so only to the extent that the VAT is attributable to use for business purposes?’

Case C-33/09

25In May 2005, Oracle provided, in return for payment, food and drink to its staff. It also secured the services of a disc-jockey for a staff function and arranged for accommodation to be found for one of its employees. By way of a business gift, Oracle also invited third parties to a golfing event. In addition, it placed at the disposal of some of its staff cars which belonged to the company or which the company had leased, partly in return for consideration.

26In its VAT declaration for May 2005, Oracle identified VAT in the amount of EUR 62 127 as non-deductible; the total amount of VAT it paid for that month amounted to EUR 9 768 326.

27The said amount of EUR 62 127 related to the following items:

— leasing cars — without contribution from staff member EUR 8 480

— with contribution from staff member EUR 41 520 — own cars

— mobile phones

— catering

— entertainment

— accommodation

— business gifts EUR 306

EUR 6 358

EUR 3 977

EUR 850

EUR 380

EUR 256.

Oracle subsequently lodged a complaint, submitting that it had in fact a right to deduct the VAT relating to those expenses.

29The Inspector rejected that complaint as unfounded.

30Oracle brought an action against that decision before the Rechtbank te Haarlem (District Court, Haarlem).

31The Rechtbank te Haarlem held that the Inspector had been wrong not to allow the deduction of input VAT in respect of the costs of mobile phones, the costs of real estate brokerage and the payment for a golfing event, given that, in respect of those costs, the restriction of the deduction had not been adequately defined. By contrast, the Rechtbank te Haarlem took the view that the other categories of non-deductible expenses were adequately defined and that, consequently, the Inspector had been right to refuse the deduction of input VAT in respect of the items at issue.

32Both Oracle and the Inspector appealed against that judgment to the Gerechtshof Amsterdam.

33Before the Gerechtshof Amsterdam, Oracle maintained, inter alia, that the applicable provisions of the domestic legislation at issue, in excluding or restricting the right to deduct VAT on the supply of the goods and services in question in the main action, were contrary to Article 11(4) of the Second Directive and to Article 6(2) of the Sixth Directive. For his part, the Inspector claimed that the refusal of deduction of VAT was based on a provision which had been introduced in the Netherlands before the entry into force of the Sixth Directive, in accordance with the option given to Member States by Article 17(6) of that directive, which is still applicable.

34In those circumstances, the Gerechtshof Amsterdam stayed the proceedings and referred the following questions to the Court of Justice for a preliminary ruling:

‘(1) Are Article 11(4) of the Second Directive and Article 17(6) of the Sixth Directive to be interpreted as meaning that a Member State wishing to make use of the possibility offered by those articles of (retaining) the exclusion of deduction in respect of categories of expenditure described as [follows]:

— “the provision of food and drink to the staff of the trader”;

— “giving business gifts or other gifts to persons in relation to whom, if they had been charged or were to be charged the relevant tax, such tax would be entirely or mainly non-deductible”;

— “providing the staff of the trader with accommodation”;

— “providing the staff of the trader with opportunities for recreation”,

has satisfied the condition requiring the designation of a category of adequately defined goods and services?

(2) If the answer to the first question is in the affirmative for one of the categories listed, do Article 6(2) and Article 17(2) and (6) of the Sixth Directive leave room for a national statutory provision, such as that at issue, which was enacted before the Sixth Directive entered into force and on the basis of which a taxable person may not deduct in full the turnover tax paid on the acquisition of certain goods or services because a fee was charged in respect thereof which incurred value added tax, but only an amount up to the amount of tax owed in respect of that supply?

(3) If, in respect of “the provision of food and drink”, the condition is satisfied which requires the designation of a category of adequately defined goods and services, does Article 17(6) of the Sixth Directive preclude an amendment to an existing exclusion of the deduction, from which amendment it seems likely that in principle the scope of the exclusion will be restricted but where it cannot be ruled out that in an individual case in a particular year the scope of the restriction of the deduction might be extended, in particular through the flat-rate nature of the amended scheme?’

35By order of the President of the Court of 17 June 2009, Cases C-538/08 and C-33/09 were joined for the purposes of the oral procedure and judgment.

The questions referred for a preliminary ruling

The first question referred in each of the two cases

36By these questions, the referring courts ask, essentially, whether Article 11(4) of the Second Directive and Article 17(6) of the Sixth Directive authorise a Member State to exclude from the right to deduct input VAT a certain number of goods and services listed in national legislation, regard being had to the fact that that legislation was applicable when the Sixth Directive entered into force.

37In order to answer those questions, it is necessary first of all to bear in mind that the right of deduction laid down in Article 6(2) of the Sixth Directive, as an integral part of the VAT scheme, is a fundamental principle underlying the common system of VAT and in principle may not be limited (see Joined Cases C-110/98 to C-147/98 Gabalfrisa and Others [2000] ECR I-1577, paragraph 43; Case C-409/99 Metropol and Stadler [2002] ECR I-81, paragraph 42; and Case C-465/03 Kretztechnik [2005] ECR I-4357, paragraph 33).

38The principle of the right to deduct is, however, subject to the derogation in Article 17(6) of the Sixth Directive, and in particular the second subparagraph thereof. The Member States are thereby authorised to retain their existing legislation as at the date of entry into force of the Sixth Directive in regard to exclusion from the right of deduction until such time as the Council has adopted the provisions envisaged by that article (see Case C-345/99 Commission v France [2001] ECR I-4493, paragraph 19, and Case C-371/07 Danfoss and AstraZeneca [2008] ECR I-9549, paragraph 28).

39However, as none of the proposals put to the Council by the Commission under the first subparagraph of Article 17(6) of the Sixth Directive has been adopted by the Council, the Member States may retain their existing legislation in regard to exclusion from the right to deduct VAT until such time as the European Union legislature has established a common system of exclusions and thus brought about the progressive harmonisation of national VAT legislation. European Union law therefore does not yet contain any provision listing the expenditure excluded from the right to deduct VAT (see Case C-280/04 Jyske Finans [2005] ECR I-10683, paragraph 23, and Danfoss and AstraZeneca, paragraph 29).

40None the less, the Court has held that Article 17(6) of the Sixth Directive presupposes that the exclusions which Member States may retain pursuant to that provision were lawful under the Second Directive, which pre-dated the Sixth Directive (see Case C-305/97 Royscot and Others [1999] ECR I-6671, paragraph 21).

41In this respect, while Article 11(1) of the Second Directive introduced the right of deduction, Article 11(4) thereof provided that the Member States could exclude from the deduction system certain goods and services, in particular those capable of being exclusively or partially used for the private needs of the taxable person or of his staff.

42Article 11(4) of the Second Directive did not therefore confer on Member States an unfettered discretion to exclude all, or almost all, goods and services from the right of deduction and thereby deprive of its substance the system established by Article 11(1) of the Second Directive (see, to that effect, Royscot and Others, paragraph 24).

43Furthermore, and in view of the strict interpretation which it must be given as a derogation, the second subparagraph of Article 17(6) of the Sixth Directive cannot be regarded as permitting a Member State to maintain a restriction of the right to deduct VAT which may also apply in a general manner to any expenditure related to the acquisition of goods, irrespective of the nature or purpose of that restriction (see Case C-74/08 PARAT Automotive Cabrio [2009] ECR I-3459, paragraph 28).

44It follows from the foregoing that the option given to Member States by the second subparagraph of Article 17(6) of the Sixth Directive presupposes that those Member States adequately define the nature or the purpose of the goods and services in respect of which the right to deduct is excluded in order to ensure that that option is not used to authorise general exclusions from that system (see, to that effect, PARAT Automotive Cabrio, paragraph 29).

45It is thus necessary to examine whether categories of expenditure that have been excluded from the right of deduction, such as those referred to in the national legislation at issue in the main proceedings, have been adequately defined.

46In the first place, with regard to expenditure such as that at issue in the first question in Case C-538/08, namely expenditure relating to one of the transactions referred to in Article 1(1)(c) of the VAT Decree, in this case goods and services used by the trader to provide its staff with ‘private transport’, it must be noted that that particular category of transactions relates to goods and services used to offer private transport and the provision of a vehicle for transporting staff members of the taxable person from their place of residence to their place of employment.

47The specific characteristics of such transactions must be considered to constitute an adequate description of the nature or purpose of the goods and services to which they relate for the purposes of the requirements laid down by the case-law in respect of the system of derogations set out in Article 17(6) of the Sixth Directive.

48In the second place, it is necessary to assess whether expenditure such as that at issue in the first question in Case C-33/09 may also be regarded as meeting those requirements.

49In the present context, what is at issue is the provision of ‘food’ and ‘drink’ to the trader’s staff, the provision of ‘accommodation’ to members of that staff, the giving, under certain conditions, of ‘business gifts’ or ‘other gifts’ and the granting to that staff of opportunities ‘for sports and leisure activities’.

50As regards categories of expenditure such as those relating to the provision of food and drink as well as accommodation, these must be considered to be adequately described for the purposes of the requirements laid down by the abovementioned case-law.

51As the Gerechtshof Amsterdam states, the category ‘food and drink’ concerns foodstuffs and beverages as well as the goods and services involved in the making and preparation of such foodstuffs and beverages. The other category of expenditure, namely that relating to the provision of accommodation, comprises, as the Gerechtshof Amsterdam points out, making accommodation available to members of the trader’s staff as well as the cost incurred in using agency or brokerage services with a view to providing such accommodation.

52As regards categories such as those relating to ‘opportunities for sports and leisure activities’ and to ‘business gifts’ and ‘other gifts’, these must also be considered to be adequately defined for the purposes of the abovementioned requirements.

53The category ‘business gifts’ is defined in more detail by Article 1(2) of the VAT Decree, according to which ‘business gifts’ or ‘other gifts’ are to be understood to mean any supplies provided by the trader ‘in furtherance of business relationships or out of generosity towards others’.

54Likewise, the category ‘providing the staff of the trader with opportunities for recreation’ is restricted to certain goods and services. These may be identified by taking into account the measures normally adopted by companies to motivate their staff.

55This interpretation is, furthermore, supported by the second sentence of the first subparagraph of Article 17(6) of the Sixth Directive, according to which, if the Council does take legislative action in the matter, expenditure which is not strictly business expenditure, such as that on luxuries, amusements or entertainment, is under no circumstances to be deductible.

56Consequently, all the categories of expenditure examined above must be considered to be consistent with the system of derogations established by Article 17(6) of the Sixth Directive.

57In the light of the foregoing considerations, the answer to the first question referred in each of the two cases is that Article 11(4) of the Second Directive and Article 17(6) of the Sixth Directive must be interpreted as not precluding the tax legislation of a Member State from excluding from deduction VAT which relates to categories of expenditure concerning, on the one hand, the provision of ‘private transport’, ‘food’, ‘drink’, ‘accommodation’ and ‘opportunities for recreation’ to the members of staff of a taxable person and, on the other hand, the provision of ‘business gifts’ or ‘other gifts’.

The second question referred in each of the two cases

58Given that the first question referred in each of the two cases has been answered in the affirmative, it is necessary to examine, in a manner identical for both cases, whether Article 6(2) and Article 17(2) and (6) of the Sixth Directive preclude national legislation, adopted before that directive entered into force, under which a taxable person may deduct VAT paid on the acquisition of goods and services relating to one of the categories at issue in the cases in the main proceedings which are used partly for private purposes and partly for professional purposes not in full but only in proportion to their use for professional purposes.

59In order to reply to that question, it must be noted that, even though, taking into account the scope of the option provided to Member States by Article 17(6) of the Sixth Directive, those Member States are entitled to retain, in full, exclusions from the right to deduct in respect of categories of expenditure that are adequately defined, Member States may also restrict the scope of an exclusion from the right to deduct in respect of such categories of expenditure.

60Such legislation is consistent with the objective of the Sixth Directive, which is reflected in particular in Article 17(2) thereof.

61Therefore, the answer to the second question referred in each of the two cases is that Article 17(6) of the Sixth Directive must be interpreted as not precluding national legislation, enacted before the Sixth Directive entered into force, under which a taxable person may deduct VAT paid on the acquisition of certain goods and services used partly for private purposes and partly for professional purposes not in full but only in proportion to their use for professional purposes.

The third question referred in Case C-33/09

62The first question in Case C-33/09 having been answered in the affirmative as regards the category of goods and services relating to ‘the provision of food and drink’, it is now necessary to examine the third question referred in that case.

63In that final question, the Gerechtshof Amsterdam asks whether Article 17(6) of the Sixth Directive precludes an amendment by a Member State, after the entry into force of that directive, to an existing exclusion from the right of deduction, designed in principle to restrict the scope of that exclusion but in respect of which it cannot be ruled out that, in an individual case in a particular tax year, the scope of that exclusion might be extended by reason of the flat-rate nature of the amended scheme.

64In order to reply to that question, it must be noted by way of a preliminary point that it concerns only the particular situation of the partial exclusion from the right to deduct of the category of expenditure relating to the ‘provision of food and drink [to the staff of the trader]’ in Article 1(1)(c) of the VAT Decree.

65It is necessary to recall in this regard that the VAT Decree was amended in respect of that category of expenditure after the Sixth Directive had entered into force.

66As the Gerechtshof Amsterdam has pointed out, that legislative amendment had the effect of reducing the scope of the exclusion from the right to deduct for the category of expenditure at issue.

67So far as concerns compliance of such a legislative amendment with Article 17(6) of the Sixth Directive, the Court has held that, where, after the entry into force of the Sixth Directive, a Member State amends the scope of existing exemptions from deduction so as to reduce that scope and thereby brings its legislation into line with the objective of the Sixth Directive, that legislation must be considered to be covered by the derogation in the second subparagraph of Article 17(6) of the Sixth Directive and is not in breach of Article 17(2) thereof (see Commission v France, paragraph 22; Metropol and Stadler, paragraph 45; and Danfoss and AstraZeneca, paragraph 32).

68As regards the possibility, referred to by the Gerechtshof Amsterdam but which the parties agree is irrelevant to the main proceedings, that, in exceptional cases, the amended scheme of partial, flat-rate exclusion from the right to deduct, introduced after the Sixth Directive had entered into force, may lead to a less favourable result than under the previous scheme, by reason of the specific rules for applying the new scheme, it must be held that that circumstance does not undermine the principle of interpretation laid down in the abovementioned case-law.

69As the Gerechtshof Amsterdam has stated, such a situation is likely to arise only where the taxable person offers food and drink to his staff, without contributing either to their preparation or to facilitating their consumption, while exceeding a certain threshold per member of staff during the same accounting year.

70As the Advocate General stated in point 86 of his Opinion, the mere possibility that such an unfavourable effect may arise cannot be a reason to take the view that such a legislative amendment, introduced after the entry into force of the Sixth Directive, breaches Article 17(6) of that directive, given that that amendment is, in general, more favourable to taxable persons than was the scheme in existence up to that date. In those circumstances, the existence, even if established, of such an isolated or exceptional situation would not affect the principle that the amendment to the national legislation which was adopted after the entry into force of the Sixth Directive has reduced the scope of the previously existing exclusions from the r.ight to deduct.

71Consequently, Article 17(6) of the Sixth Directive must be interpreted as not precluding an amendment by a Member State, after the entry into force of that directive, to an existing exclusion from the right of deduction, designed in principle to restrict the scope of that exclusion but in respect of which it cannot be ruled out that, in an individual case in a particular tax year, the scope of that exclusion might be extended by reason of the flat-rate nature of the amended scheme.

Costs

72Since these proceedings are, for the parties to the main proceedings, a step in the actions pending before the national courts, the decisions on costs are a matter for those courts. 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 (Third Chamber) hereby rules:

1. Article 11(4) of 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 and Article 17(6) of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment must be interpreted as not precluding the tax legislation of a Member State from excluding from deduction value added tax which relates to categories ‘ of expenditure concerning, on the one hand, the provision of private trans-’ ‘ ’ ‘ ’ ‘ ’ ‘ ’ port , food , drink , accommodation and opportunities for recreation to the members of staff of a taxable person and, on the other hand, the provi-‘ ’ ‘ ’

sion of business gifts or other gifts .

2. Article 17(6) of Sixth Directive 77/388 must be interpreted as not precluding national legislation, enacted before the Sixth Directive entered into force, under which a taxable person may deduct value added tax paid on the acquisition of certain goods and services used partly for private purposes and partly for professional purposes not in full but only in proportion to their use for professional purposes.

3. Article 17(6) of Sixth Directive 77/388 must be interpreted as not precluding an amendment by a Member State, after the entry into force of that directive, to an existing exclusion from the right of deduction, designed in principle to restrict the scope of that exclusion but in respect of which it cannot be ruled out that, in an individual case in a particular tax year, the scope of that exclusion might be extended by reason of the flat-rate nature of the amended scheme.

[Signatures]

OPINION OF ADVOCATE GENERAL MENGOZZI delivered on 28 January 2010

I — Introduction

1By the questions raised in the present joined cases, the Court of Justice is asked about the interpretation of Article 11(4) of 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, and of Article 17(6) of the Sixth Directive.

2These questions have been raised in proceedings which relate, in essence, to certain categories of expenditure incurred by persons liable to VAT in respect of members of their staff, for which the Netherlands legislation, adopted before the entry into force of the Sixth Directive, partially excludes the right to deduct input VAT.

II — Legal framework

A – Community legislation

3Article 11(1) of the Second Directive provided:

‘Where goods and services are used for the purposes of his undertaking, the taxable person shall be authorised to deduct from the tax for which he is liable:

(a) the value added tax invoiced to him in respect of goods supplied to him or in respect of services rendered to him; ...’

4Article 11(4) of the Second Directive provided:

‘Certain goods and services may be excluded from the deduction system, in particular those capable of being exclusively or partially used for the private needs of the taxable person or of his staff.’

5Article 2 of the Sixth Directive provides:

‘The following shall be subject to value added tax:

1. the supply of goods or services effected for consideration within the territory of the country by a taxable person acting as such;

2. the importation of goods.’

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

‘The following shall be treated as supplies of services for consideration:

(a) the use of goods forming part of the assets of a business for the private use of the taxable person or of his staff or more generally for purposes other than those of his business where the value added tax on such goods is wholly or partly deductible;

(b) supplies of services carried out free of charge by the taxable person for his own private use or that of his staff or more generally for purposes other than those of his business.

Member States may derogate from the provisions of this paragraph provided that such derogation does not lead to distortion of competition.’

7Article 17(2) and (6) of the Sixth Directive states:

‘2. In so far as the goods and services are used for the purposes of his taxable transactions, the taxable person shall be entitled to deduct from the tax which he is liable to pay:

(a) value added tax due or paid in respect of goods or services supplied or to be supplied to him by another taxable person;

…

6. Before a period of four years at the latest has elapsed from the date of entry into force of this Directive, the Council, acting unanimously on a proposal from the Commission, shall decide what expenditure shall not be eligible for a deduction of value added tax. Value added tax shall in no circumstances be deductible on expenditure which is not strictly business expenditure, such as that on luxuries, amusements or entertainment. Until the above rules come into force, Member States may retain all the exclusions provided for under their national laws when this Directive comes into force.’

B – National legislation

8Article 2 of the Wet op de omzetbelasting (Law on turnover tax) 1968 (‘the VAT Law’) states:

‘A trader may deduct from the tax to be paid on supplies of goods and services the tax charged on supplies of goods and services to him, acquisitions of goods effected by him within the Community and imports of goods intended for him.’

9Article 15 of the VAT Law states:

‘1. The tax referred to in Article 2 which is deductible by the trader shall be:

(a) the tax which, in the period covered by the return, other traders have charged him by means of an invoice issued in accordance with the applicable rules, in respect of supplies of goods and services which they have made to him;

…’

10Article 16(1) of the VAT Law provides:

‘The deduction referred to in the first subparagraph of Article 15(1) may, in certain cases, be totally or partially excluded by royal decree in order to prevent a situation in which goods and services relating to luxury expenditure, for the purposes of persons who are not traders ... are totally or partially exempted from VAT.’

11Under Article 1 of the Besluit uitsluiting aftrek omzetbelasting 1968) (Royal Decree on the exclusion of deductions from turnover tax, ‘the BUA’), in the version in force from 1 January 1969 to 31 December 1979, the deduction referred to in Article 15(1) of the VAT Law was not allowed in cases where, and to the extent to which, the goods or services were used for:

‘1. …

(a) giving business gifts or other gifts to persons in relation to whom, if they had been charged or were to be charged the relevant turnover tax, this would be entirely or mainly non-deductible;

(b) providing the staff of the trader with food and drink, accommodation, payment in kind, opportunities for sports and leisure activities, or private transport, or for other personal purposes of the staff concerned;

2. “Business gifts” or “other gifts” shall be understood to mean any supplies provided by the trader in furtherance of business relationships or out of generosity towards others without his receiving consideration or for which he receives consideration which is lower than the acquisition or production costs or, in the case of services, the cost price of such services excluding turnover tax.’

12Article 2 of the BUA provides:

‘Where the trader has charged a fee in respect of a supply referred to in Article 1(1)(b) or (c), and therefore owes turnover tax, a deduction up to the amount of tax owed by the trader in respect of the supply concerned shall not be excluded.’

13Article 3 of the BUA, in the version in force up to 31 December 1979, stated:

‘If the total of the acquisition or production costs or the cost price, excluding turnover tax, of all the supplies within the meaning of Article 1(1)(b) and (c) provided by the trader in one financial year in respect of a given person, does not exceed NLG 250, those supplies shall fall outside the scope of this decree.’

14With effect from 1 January 1980, the BUA was amended to introduce a special scheme for the provision of food and drink; the other provisions of the decree remained unaltered.

15Accordingly, from 1 January 1980, the provision of food and drink was excluded from Article 1(1)(c) of the BUA. Article 3 of the BUA was renumbered as Article 4 and a new Article 3 was inserted, providing for the exclusion of the deduction of VAT payable on food and drink. The amount mentioned in the former Article 3 (now Article 4) was changed from NLG 250 to NLG 500.

16The new provisions of the decree are therefore worded as follows:

Article 3

‘1. If goods and services are used by the trader for the purpose of providing food and drink to his staff and he has charged less for this purpose than the amount described in Article 3(2), the deduction shall be excluded up to a maximum of 6% of the difference between that amount and the amount which has been charged.

2. The amount referred to in Article 3(1) shall consist in the acquisition costs of the food and drink, excluding turnover tax, plus 25%. If the trader has manufactured the food and drink himself, the acquisition costs of the raw materials shall be taken into account instead of the acquisition costs of the food and drink.’

Article 4

‘1. If the total of the acquisition or production costs or the cost price, excluding turnover tax, of all the supplies within the meaning of Article 1(1)(b) and (c) provided by the trader in one financial year in respect of a given person, and the portion of the difference referred to in Article 3(1) and applicable to that person does not exceed NLG 500, those services and that portion of the difference shall not be taken into account for the purposes of the application of this decree.

2. In calculating the total referred to in paragraph 1, the difference referred to in Article 3(1) shall not be taken into account if, with regard to the supply of food and drink to the staff of the trader, the deduction was excluded pursuant to Article 3.’

III — The main proceedings and the questions referred for a preliminary ruling

A – Case C-538/08, X Holding

17During the period between 1 January 1997 and 31 December 1999, X Holding purchased 34 passenger cars from car dealers. It retained the cars for a limited period, after which it sold them.

18X Holding deducted in full the VAT which it had been charged when it purchased the cars. It paid on declaration the VAT charged on the sale of each car.

19On 10 July 2001, an investigation was opened into the accuracy of the VAT returns submitted by X Holding during the years in question. In a report dated 13 November 2002, the finance inspectorate concluded that most of the cars purchased had not been used for the needs of the company and that X Holding had therefore wrongly claimed deduction of the input VAT paid. Consequently, an additional VAT assessment of NLG 887 852 (EUR 402 889) was imposed.

20X Holding lodged an objection against that decision. In the review of the matter, the finance inspectorate concluded that four of the 34 cars had been purchased and used in the context of the business exclusively for commercial purposes. In those circumstances, the deduction of the input VAT paid on the acquisition of those four cars was allowed. The additional VAT assessment was therefore reduced, the amount of VAT payable being NLG 856 605 (EUR 388 710).

21X Holding appealed against that decision before the Gerechtshof (Regional Court of Appeal) Amsterdam (Netherlands). That court ruled that the 30 cars which were the subject of an additional VAT assessment were used for both business and private purposes. The Gerechtshof therefore upheld the additional VAT assessment.

22The Hoge Raad der Nederlanden (Supreme Court of the Netherlands), hearing the appeal against the judgment of the Gerechtshof, pointed out that Article 11(4) of the Second Directive allowed Member States to exclude certain goods and services from the deduction system, in particular those capable of being exclusively or partially used for the private needs of the taxable person or those of his staff. That provision therefore allowed Member States to exclude from the system certain categories of motor vehicles, but did not allow them to exclude from it all goods in so far as they are used for the private purposes of the taxable person. Indeed, the option given applies only to maintaining exclusions from deduction with regard to categories of expenditure defined by reference to the nature of the goods or services rather than by reference to the use to which they are put or the way in which they are used.

23The Hoge Raad also noted that the restriction of the deduction provided for in Article 1(1)(c) of the BUA also applies to goods and services used for other personal purposes of the staff and to payments of wages in kind. As the system concerns all goods for private use, the Hoge Raad considered that restriction to be, on the whole, inadequately defined and too broad. However, it noted that the provision describes some categories of goods and services more specifically. This is true, for example, of goods and services used to provide opportunities for private transport. For the Hoge Raad, it was clear from an analysis of the background to that provision that, in referring to goods and services used to provide opportunities for private transport, the national legislature intended to include situations in which a taxable person makes a passenger car available to a member of his staff for private (and other) purposes.

24The Hoge Raad therefore stayed proceedings and referred the following questions to the Court of Justice for a preliminary ruling:

‘1. Must Article 11(4) of the Second Directive and Article 17(6) of the Sixth Directive be interpreted as meaning that a Member State wishing to take advantage of the possibility for which those provisions provide of (retaining) the exclusion of deduction with respect to categories of expenditure which are described as “providing the opportunity for private transport” has satisfied the condition requiring the designation of a category of adequately defined goods and services?

2. If the answer to the first question is in the affirmative, do Article 6(2) and Article 17(2) and (6) of the Sixth Directive leave room for national legislation such as that at issue, which was adopted before that directive entered into force and under which a taxable person may not deduct in full the VAT paid on the acquisition of certain goods and services which are used partly for business purposes and partly for private purposes of the staff, but may do so only to the extent that the VAT is attributable to use for business purposes?’

B – Case C-33/09, Oracle Nederland

25Oracle is a worldwide supplier of database products for companies.

26In May 2005, Oracle provided, in return for payment, food and drink to its staff, for which the company entered in its tax return an amount of EUR 3 977 in respect of input VAT. During the same period, Oracle acquired the services of a disc-jockey for a staff function and arranged for accommodation to be found for one of its employees; the VAT paid in respect of those items of expenditure was EUR 850 and EUR 380 respectively. Finally, by way of a business gift, Oracle also invited third parties to a golfing event, for which VAT of EUR 256 was entered by the company in its tax return for May 2005.

27The dispute between Oracle and the Inspecteur van de Belastingdienst (Inspector of the Revenue Service) Utrecht-Gooi (Netherlands) concerns the input VAT payable on the items of expenditure listed in the previous point; the Inspector considered that, under the provisions of the VAT Law and the BUA, deduction of the input VAT was to be excluded for the categories of expenditure referred to therein.

28That assessment was disputed by Oracle before the Rechtbank (District Court) Haarlem (Netherlands), which upheld the appeal in part so far as the expenditure connected with the golfing event was concerned, since ‘business gifts’ constitute a category which is inadequately defined for the purpose of restricting the right to deduction. The Rechtbank dismissed the remainder of the appeal.

29Both Oracle and the Netherlands tax authority lodged an appeal against the judgment of the Rechtbank.

30In that regard, Oracle maintained inter alia that the relevant provisions of the Netherlands legislation, in excluding or restricting the right to deduction of VAT on the goods and services in question, are contrary to Article 11(4) of the Second Directive and Article 6(2) and (6) of the Sixth Directive. For its part, the Netherlands tax authority claimed that the exclusion of the right to deduct input VAT is based on a national provision introduced before the entry into force of the Sixth Directive but still applicable, in accordance with the option given to Member States by Article 17(6) of the Sixth Directive.

31In those circumstances, the Gerechtshof te Amsterdam stayed the proceedings and referred the following questions to the Court for a preliminary ruling:

‘1. Are Article 11(4) of the Second Directive and Article 17(6) of the Sixth Directive to be interpreted as meaning that a Member State wishing to make use of the possibility offered by those articles of (retaining) the exclusion of deduction in respect of categories of expenditure described as: — “giving business gifts or other gifts to persons in relation to whom, if they had been charged or were to be charged the relevant turnover tax, such tax would be entirely or mainly non-deductible”;

— “providing the staff of the trader with accommodation”;

— “providing the staff of the trader with opportunities for recreation”,

has satisfied the condition requiring the designation of a category of adequately defined goods and services?

2. If the answer to the first question is in — “the provision of food and drink to the staff of the trader”;

the affirmative for one of the categories listed, do Article 6(2) and Article 17(2) and (6) of the Sixth Directive leave room for a national statutory provision, such as that at issue, which was enacted before the Sixth Directive entered into force and on the basis of which a taxable person may not deduct in full the turnover tax paid on the acquisition of certain goods or services because a fee was charged in respect thereof which incurred turnover tax, but only an amount up to the amount of tax owed in respect of that supply?

3. If, in respect of “the provision of food and drink”, the condition is satisfied which requires the designation of a category of adequately defined goods and services, does Article 17(6) of the Sixth Directive preclude an amendment to an existing exclusion of the deduction, from which amendment it seems likely that in principle the scope of the exclusion will be restricted but where it cannot be ruled out that in an individual case in a particular year the scope of the restriction of the deduction might be extended, in particular through the flat-rate nature of the amended scheme?’

IV — Procedure before the Court

32In accordance with Article 23 of the Statute of the Court of Justice of the European Union, written observations have been submitted in Cases C-538/08 and C-33/09 by the Greek and Netherlands Governments, and by the Commission of the European Communities. The applicant in the main proceedings in Case C-33/09 has also submitted written observations in that case.

33By order of the President of the Court of 17 June 2009, Cases C-538/08 and C-33/09 were joined for the purposes of the oral procedure and the judgment.

34The applicant in the main proceedings in Case C-33/09, the Greek and Netherlands Governments and the Commission presented oral argument at the hearing held on 3 December 2009.

V — Legal analysis

35Since the wording of the first two questions posed in C-33/09 differs from that of the first two questions in Case C-538/08 only in respect of the difference between the goods and services at issue in the main proceedings, I consider that they should be examined together. Only the third question posed in Case C-33/09 requires separate consideration.

A – The first questions posed in the two cases

36By the first questions, the national courts wish to know whether Article 11(4) of the Second Directive and the second subparagraph of Article 17(6) of the Six Directive are to be interpreted as authorising Member States to exclude from the right to deduct input VAT various categories of goods or services listed in its national legislation, which was applicable before the entry into force of the Sixth Directive, regard being had to the wording of those categories.

37It is important, first of all, to point out that the principle of the right to deduct VAT, as expressly and precisely stated in Article 17(2) of the Sixth Directive, is nevertheless qualified by the derogation in the second subparagraph of Article 17(6) of the Sixth Directive. Under that provision, the Member States are authorised to retain their existing legislation as at the date of entry into force of the Sixth Directive in regard to exclusion from the right of deduction until such time as the Council has adopted the provisions envisaged by that article.

38However, since none of the proposals put to the Council by the Commission under the first subparagraph of Article 17(6) of the Sixth Directive has been adopted by the Council, the Member States may retain their existing legislation in regard to exclusion from the right to deduct VAT until such time as the Community legislature has established a Community system of exclusions and thus brought about the progressive harmonisation of national VAT legislation. Community law therefore does not yet contain any provision listing the expenditure excluded from the right to deduct VAT.

39In other words, the second subparagraph of Article 17(6) of the Sixth Directive c ontains a standstill clause which provides for the retention of national exclusions from the right to deduct VAT which were applicable before the Sixth Directive entered into force.

40Nevertheless, as the Court has also pointed out, Article 17(6) of the Sixth Directive presupposes that the exclusions which Member States may retain pursuant to that provision were lawful under the Second Directive, which predated the Sixth Directive.

41However, while Article 11(1) of the Second Directive provided for the right of deduction, Article 11(4) authorised Member States to exclude certain goods and services from the deduction system, particularly those which are capable of being used exclusively or partially for the private needs of the taxable person or his staff.

42It is against that background that the national courts question whether the Netherlands legislation applicable before the entry into force of the Sixth Directive (that is, before 1 January 1978) defines with adequate precision certain goods or certain services which it excludes from the right to deduct VAT.

43Although, as a rule, it is not for the Court of Justice, in preliminary ruling proceedings, to interpret the national legislation in order to determine whether, at the date of entry into force of the Sixth Directive, its content was compatible with that Directive and with the Second Directive, the Court may, in a spirit of cooperation with national courts, provide the national court with all the guidance that it deems necessary in order to give the national court a useful answer.

44In the present case, it is necessary to determine what is meant by certain goods or services, within the meaning of Article 11(4) of the Second Directive and of the case-law.

45In that regard, in the judgment in Royscot, the Court acknowledged that the United Kingdom was entitled to make use of the authorisation deriving from Article 11(4) of the Second Directive in excluding from the right of deduction certain goods such as motor cars, even though the expenditure in question was strictly business related.

46The Court thus emphasised the nature of the goods (or services) for the purpose of identifying expenditure covered by the exclusion from the right to deduct provided for in Article 11(4) of the Second Directive, by omitting from that verification the criterion of the use to which the goods (or services) are put, that is to say, whether they are likely to be used for business or private purposes.

47Furthermore, it is this interpretation of the judgment in Royscot that the Court accepted, in essence, in the judgment in Uudenkaupungin kaupunki. In the latter judgment, the Court expressly inferred from paragraphs 21 to 25 of the judgment in Royscot – which related, I recall, to the interpretation of Article 11(4) of the Second Directive – that analysis of the origin of Article 17(6) of the Sixth Directive showed that the option given to Member States by the second subparagraph of that provision applies only to ‘maintaining exclusions from deduction with regard to categories of expenditure defined by reference to the nature of the goods or services acquired rather than by reference to the use to which they are put or the way in which they are used’.

48The question whether that criterion for defining the goods and services at issue by reference to their nature is exclusive of other criteria was raised in the Commission’s written observations and also, at the hearing, by the Netherlands and Greek Governments. Those parties pointed out that, in paragraph 28 of the judgment in PARAT Automotive Cabrio, the Court acknowledged that the exclusion from the right to deduct VAT could also be justified by reference to the purpose or objective of the goods or services concerned, a finding which constitutes a development in relation to the judgment in Uudenkaupunki kaupunki. According to those parties, the consequence, for the main proceedings in Case C-33/09, of the contribution made by the judgment in PARAT Automotive Cabrio is that the exclusion from the right to deduct VAT in respect of the category of business gifts, imposed by the Netherlands legislation, may be justified.

49I, for my part, consider that the Commission and the Netherlands and Greek Governments attempt to draw conclusions from paragraph 28 of the judgment in PARAT Automotive Cabrio which go beyond what is actually stated in that judgment. Indeed, for the reasons set out below, that judgment cannot, to my mind, be interpreted in the way advocated by the Commission and the Netherlands and Greek Governments in the present cases.

50I would point out that, in paragraph 28 of the judgment in PARAT Automotive Ca-bio, the Court, hearing a matter concerning the interpretation of the second subparagraph of Article 17(6) of the Sixth Directive, stated that that provision ‘cannot be regarded as permitting a Member State to maintain a restriction of the right to deduct VAT which may also apply in a general manner to any expenditure related to the acquisition of goods, irrespective of its nature or purpose’.

51As regards its wording, I would point out that, contrary to what the Commission stated in its written observations but as it acknowledged at the hearing following a specific question in that respect posed by the Court, the term ‘its purpose’ does not refer ‘to the goods’ but to the expenditure connected with the acquisition of goods. That is apparent from a reading of the version of the judgment in the language of the procedure and, for example, of the French and Italian language versions. This interpretation is also logical in the light of paragraph 27 of the judgment in PARAT Automotive Cabrio, which refers to the list of expenditure given in the first subparagraph of Article 17(6) of the Sixth Directive, expenditure which, according to that provision, must in any event be excluded from the right to deduct input VAT, namely, expenditure on luxuries, amusements or entertainment. Indeed, the last two of those kinds of expenditure are clearly defined by their purpose. Therefore, that explains the reference to the purpose of the expenditure in paragraph 28 of that judgment.

52Irrespective of that point and more fundamentally, it is the context of paragraph 28 of the judgment in PARAT Automotive Cabrio and the relationship between Article 17(6) of the Sixth Directive and Article 11(4) of the Second Directive which make me inclined to think that the addition of the term ‘its purpose’ cannot be interpreted as the expression of the Court’s intention to add to the criterion for defining certain goods or services, covered by Article 11(4) of the Second Directive, by reference to their nature, a criterion based on the purpose (in the sense of objective) of the goods or services, or even expenditure connected with the acquisition of the goods and services.

53It should be pointed out, first of all, that, in the judgment in PARAT Automotive Cabrio, the Court examined inter alia whether a national measure of a general nature, adopted before the accession of the Republic of Hungary to the European Union, excluding the right to full deduction of input VAT relating to the acquisition of goods financed by a subsidy from public funds, was compatible with Article 17 of the Sixth Directive. However, in the light of the general nature of the national measure, which covered all types of goods, quite logically the question never arose – as it has in the main proceedings in the present cases – as to whether the category of goods or services covered by the national legislation was adequately defined.

54It is also important to state that paragraph 28 of the judgment in PARAT Automotive Cabrio interprets only the second subparagraph of Article 17(6) of the Sixth Directive and leaves aside the question of the interpretation of the term ‘certain goods or services’, within the meaning of Article 11(4) of the Second Directive.

55In my view, this assessment is confirmed by paragraph 29 of the judgment, which points out that, historically, ‘the Community legislature [has] authorise[d] only the exclusion of certain goods or services from the deduction system, and not ... general exclusions from that system’.

56Indeed, as I have already pointed out in points 40 and 41 of this Opinion, national legislation such as that at issue in the main proceedings, providing for the exclusion from the right to deduct VAT and enacted prior to the Sixth Directive, must, in order to be authorised, not only fall within the scope of the second subparagraph of Article 17(6) of that directive but must also be compatible with the Second Directive, in particular with Article 11(4), which was applicable at the time that legislation was adopted.

57It follows, in my view, that paragraphs 28 and 29 of the judgment in PARAT Automotive Cabrio mean simply that, although the second subparagraph of Article 17(6) of the Sixth Directive allows Member States to exclude from the right to deduct input VAT expenditure defined according to its nature or purpose, it cannot exempt them from the obligation, arising, directly or indirectly, from Article 11(4) of the Second Directive, to define adequately the nature of the goods or services concerned by that expenditure, if it is not to extend unduly the scope of a derogation from the system of the right to deduct.

58Therefore, and in accordance with the decision in Uudenkaupunki kaupunki, it is necessary to ascertain, in the main proceedings, whether the categories of expenditure excluded from deduction of input VAT by the legislation at issue have been defined with sufficient precision, that is to say whether they have been defined by reference to the nature of the goods or services acquired.

59In general, I would point out that the BUA applies, as well as to the specific categories which it excludes from the right to deduct, to goods and services used for any other private purposes of the undertaking’s staff. Put in those terms, such an exclusion is based on the private use to which the goods or services are put rather than on their nature and on that account do not satisfy the requirements of Article 11(4) of the Second Directive, as interpreted by the Court.

60However, as the Greek Government pointed out in its written observations, the main proceedings do not relate to goods and services falling within that general category, but to goods or services used by the taxable person for more defined needs of his staff, specified in the other categories listed in the BUA.

61It is therefore necessary to examine whether those categories are sufficiently precise in the light of the requirements of Article 11(4) of the Second Directive.

62As regards Case C-538/08, the category in question is that referred to in Article 1(1)(c) of the BUA, which concerns goods or services used by the employer to provide his staff with an ‘opportunity for private transport’.

63According to the national court, an analysis of the background to that provision clearly shows that, in referring to goods and services used to provide opportunities for private transport, the national legislature intended to include situations in which a taxable person makes a passenger car available to a member of his staff for private (and other) purposes.

64I would point out that that category is, in two respects, broader than that considered by the Court in Royscot, in which the exclusion from the right to deduct VAT payable on the purchase of motor cars was held to be compatible with Article 17(6) of the Sixth Directive. On the one hand, the category in Article 1(1)(c) of the BUA includes goods or services used to provide an opportunity for private transport. On the other hand, that category is not limited to so-called passenger cars but may also include, as the national court has pointed out, provision of a vehicle for transporting staff members of a taxable person from their place of residence to their place of employment.

65Nevertheless, that does not mean that the category in question is too generally defined.

66First, there is little doubt that that category may lead to the exclusion of all or almost all goods or services from the right to deduct and negate the general system established by Article 17(2) of the Sixth Directive.

67Secondly, as it includes the actual provision of the opportunity for private transport to members of the taxable person’s staff, the category concerned is undoubtedly a sufficiently precise designation of the goods concerned by the expenditure at issue in the main proceedings, which, it should be recalled, concern the exclusion from the right to deduct VAT paid on the purchase of cars by the taxable person and used, in part, for the private use of members of his staff.

68As for the categories at issue in Case C-33/09, I also consider that the category relating to ‘the provision of food and drink to the staff of the taxable person’ and also the category relating to ‘providing the staff of the taxable person with accommodation’ adequately meet the requirements of Article 11(4) of the Second Directive.

69On the one hand, and contrary to what has been suggested by the applicant in the main proceedings in that case in respect of the category relating to the provision of food and drink, I do not think that the goods or services concerned by that category need to be individualised and/or listed exhaustively. In the light of the information provided by the national court, it is clear that that category included foodstuffs as well as the goods and services involved in the making and preparation of food and drink. That category of goods or services therefore seems to me adequately identifiable and defined, implicitly, according to their nature.

70I also note that, in its judgment in Danfoss and AstraZeneca, the Court did not state that there was an obstacle, in principle, to the exclusion from the right to deduct VAT on purchases and similar operations relating to ‘food for the company’s owners and staff’ falling within the scope of the derogation in Article 17(6) of the Sixth Directive.

71Also, I agree with the national court’s assessment in respect of the category relating to ‘providing the staff of the trader with accommodation’, which includes, as the national court pointed out, making a dwelling available to members of the employer’s staff, as such, but also the costs incurred by using agency or brokerage services making it possible to provide the accommodation. To my mind, that category also is adequately defined, implicitly, by reference to the nature of the goods and services concerned.

72On the other hand, I have serious doubts as to whether the other two categories at issue are sufficiently definite, namely that relating to ‘providing the staff of the [taxable person] with opportunities for recreation’, referred to in Article 1(1)(c) of the BUA, and that relating to ‘giving business gifts or other gifts to persons in relation to whom, if they had been charged or were to be charged the relevant turnover tax, such tax would be entirely or mainly non-deductible’, referred to in Article 1(1)(b) of the BUA.

73Those categories are defined according to their purpose, that is, their objective, and, what is more, the nature of the goods or services concerned are not or may not be objectively delimited, even in a general way. In particular, contrary to what the N etherlands Government argued in its written o bservations, there is no evidence to support the view that the category of business gifts is limited to luxury articles. On the contrary, that claim is disproved by Article 1(2) of the BUA, which states that ‘business gifts’ or ‘other gifts’ shall be understood to mean ‘any supplies provided by the trader in furtherance of business relationships or out of generosity towards others’.

74In the light of the foregoing conclusions, I consider that Article 11(4) of the Second Directive and Article 17(6) of the Sixth Directive are to be interpreted as meaning that a Member State which has made use of the possibility offered by those articles of excluding deduction in respect of categories of expenditure described as:

— ‘providing the staff of the employer with the opportunity for private transport’,

— ‘the provision of food and drink to the staff of the employer’,

— ‘the provision of accommodation for the staff of the employer’, has satisfied the condition requiring the designation of a category of adequately defined goods and/or services, by reference, even implicitly, to the nature of those goods and/or services.

On the other hand, the exclusion, by a Member State, of the right to deduct input VAT in respect of categories of expenditure described as:

— ‘providing the staff of the employer with opportunities for recreation’,

— ‘[giving] business gifts or other gifts … to persons in relation to whom, if they had been charged or were to be charged the relevant turnover tax, such tax would be entirely or mainly non-deductible’, does not satisfy that condition.

B – The second questions posed in the two cases

75By their second questions, worded in almost identical terms, the national courts ask, in essence, whether, if a total exclusion of the right to deduct VAT is authorised for one or more of the categories of expenditure examined in the reply to the first questions referred for a preliminary ruling, the provisions of the Sixth Directive are to be interpreted as meaning that they preclude a partial exclusion from the right to deduct VAT, such as that in national legislation enacted before the directive entered into force.

76Having regard, on the one hand, to the general nature of the option given to Member States by Article 17(6) of the Sixth Directive, which allows them to retain any exclusions from the right to deduct established by their national legislation and applied before the entry into force of the Sixth Directive, and, on the other hand, to the saying that ‘He who can do more, can do less’, I see nothing to prevent a Member State limiting the scope of an exclusion from the right to deduct VAT, as soon as such an exclusion is adopted.

77That possibility seems to me to accord with the spirit of the Sixth Directive. Although the Court has acknowledged that Article 17 of the Sixth Directive does not preclude a Member State reducing the scope of exclusions existing after the entry into force of the Sixth Directive, since their abolition is the objective of Article 28(4) of the Sixth Directive, it is reasonable to infer from that that the provisions of the Sixth Directive, inter alia Article 17(2), also do not preclude the adoption, even before the entry into force of that directive, of national legislation providing for the partial exclusion from the right to deduct input VAT.

78I therefore consider that Article 17(6) of the Sixth Directive is to be interpreted as meaning that it allows a Member State to retain a partial exclusion from the right to deduct input VAT in respect of expenditure relating to certain goods or services, introduced by national legislation enacted before the entry into force of the Sixth Directive.

C – The third question posed in Case C-33/09

79The third question posed by the national court in Case C-33/09 concerns only the particular situation of the partial exclusion from the right to deduct VAT of the category of expenditure relating to the ‘provision of food and drink’ to the members of staff of the taxable person, referred to in Article 1(1)(c) of the BUA.

80I consider that, by this question, the national court is asking whether Article 17(6) of the Sixth Directive is to be interpreted as meaning that it precludes an amendment by a Member State to a partial exclusion from the right to deduct VAT in respect of the category of expenditure relating to ‘the provision of food and drink’, which is intended, in principle, to restrict its scope, but where it cannot be ruled out that, in an individual case in a particular year, the scope of the exclusion might be extended having regard to the flat-rate nature of the amended scheme.

81It is not disputed that, as regards that category – which I consider to be adequately defined, as I stated in the above examination of the first questions referred for a preliminary ruling –, the BUA was amended after the Sixth Directive entered into force.

82It is also not disputed, as is apparent from the judgment making the reference and as was also acknowledged by the applicant in the main proceedings at the hearing before the Court of Justice, that the amendments which were made in relation to the exclusion from the right to deduct VAT on expenditure relating to the provision of food and drink, in general, reduced the scope of that exclusion.

83However, according to the case-law, such a reduction in the scope of an exclusion from the right to deduct falls within the scope of the derogation provided for by Article 17(6) of the Sixth Directive, even if it was adopted after the entry into force of the Sixth Directive. Indeed, as has already been stated, the reduction in the scope of such a derogation from the principle of the right to deduct VAT, provided in Article 17(2) of the Sixth Directive, is in accordance with the objective of the directive.

84I do not consider this general assessment to be undermined by the possibility, which is referred to by the national court but which the parties agree is irrelevant to the main proceedings, that, in exceptional cases, the new flat-rate partial exclusion scheme, introduced after the Sixth Directive entered into force, may lead to a less favourable financial result than under the previous scheme, owing to the rules for applying the new scheme.

85In that regard, I note that, according to the national court and the written observations of the Netherlands Government, such a situation is likely to arise only where the taxable person offers food and drink to his staff, without contributing either to their preparation or to enabling their consumption, while exceeding the threshold of NLG 500 (approximately EUR 227) per member of staff during the same accounting year.

86However, the mere possibility that such a case may arise cannot, in my view, preclude the application of the derogation in Article 17(6) of the Sixth Directive since, as the national court has pointed out, the amendment made after the entry into force of that directive is, in general, more favourable to taxable persons than the scheme in existence up to that date. The existence, even if established, of such an isolated or exceptional situation would not affect the principle that the amendment to the national legislation, which was adopted after the entry into force of the Sixth Directive, has reduced the scope of the previously existing exclusions.

87On the other hand, I consider that, as the Commission rightly pointed out, a court hearing the exceptional and currently hypothetical case envisaged by the national court ought, in accordance with its obligation under Community law, to interpret domestic law, so far as possible, in the light of the wording and the purpose of the Sixth Directive with a view to achieving the results sought by the latter.

88I therefore consider that Article 17(6) of the Sixth Directive is to be interpreted as meaning that it allows Member States to introduce, after the entry into force of the directive, an amendment to the exclusion from the right to deduct VAT on a category of expenditure, such as that relating, in the main proceedings, to the provision of food and drink by the taxable person to members of his staff, which is intended, in principle, to restrict the scope of the exclusion but where it cannot be ruled out that, in an individual case in a particular year which is not relevant to the main proceedings, it might extend the scope of the exclusion through the flat-rate nature of the amended provision.

VI — Conclusion

89In the light of the foregoing considerations, I propose that the following r eply be given to the questions referred by the Hoge Raad der Nederlanden and the Gerechtshof Amsterdam for a preliminary ruling:

(1) Article 11(4) of 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, and Article 17(6) of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment, are to be interpreted as meaning that a Member State which has made use of the possibility offered by those articles of excluding deduction in respect of categories of expenditure described as:

— ‘providing the staff of the employer with the opportunity for private transport’,

— ‘the provision of food and drink to the staff of the employer’,

— ‘the provision of accommodation for the staff of the employer’, has satisfied the condition requiring the designation of a category of adequately defined goods and/or services, by reference, even implicitly, to the nature of those goods and/or services.

On the other hand, the exclusion, by the Member State, of the right to deduct input VAT in respect of categories of expenditure described as:

— ‘providing the staff of the employer with opportunities for recreation’,

— ‘[giving] business gifts or other gifts … to persons in relation to whom, if they had been charged or were to be charged the relevant turnover tax, such tax would be entirely or mainly non-deductible’, does not satisfy that condition.

(2) Article 17(6) of the Sixth Directive is to be interpreted as meaning that it allows a Member State to retain a partial exclusion from the right to deduct input VAT in respect of expenditure relating to certain goods or services, introduced by national legislation enacted before the entry into force of the Sixth Directive.

(3) Article 17(6) of the Sixth Directive is to be interpreted as meaning that it a llows Member States to introduce, after the entry into force of the directive, an amendment to the exclusion from the right to deduct VAT on a category of expenditure, such as that relating, in the main proceedings in Case C-33/09, to the provision of food and drink by the taxable person to members of his staff, which is intended, in principle, to restrict the scope of the exclusion but where it cannot be ruled out that, in an individual case in a particular year which is not relevant to the main proceedings, it might extend the scope of the exclusion through the flat-rate nature of the amended provision.

Notes

(1) Original language: French.

(2) OJ, English Special Edition 1967, p. 16. That directive was repealed with effect from 1 January 1978 by 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’).

(3) See to that effect in Case C-409/99 Metropol and Stadler [2002] ECR I-81, paragraphs 43 and 44; Case C-371/07 Danfoss and AstraZeneca [2008] ECR I-9549, paragraphs 27 and 28; Case C-74/08 PARAT Automotive Cabrio [2009] ECR I-3459, paragraphs 17 and 21; and Case C-460/07 Puffer [2009] ECR I-3251, paragraph 83.

(4) S ee inter alia Case C-345/99 Commission v France [2001] ECR I-4493, paragraph 20, and Danfoss and AstraZeneca, paragraph 29.

(5) See, inter alia, to that effect Danfoss and AstraZeneca, paragraph 30, and Case C-414/07 Magoora [2008] ECR I-10921, paragraph 35.

(6) See the judgment in Case C-305/97 Royscot and Others [1999] ECR I-6671, paragraph 21.

(7) See to that effect Royscot, paragraph 22, and PARAT Automotive Cabrio, paragraph 29.

(8) See, to that effect, Magoora, paragraphs 32 and 33.

(9) R oyscot, paragraphs 23 and 25. See also Case C-434/03 Charles and Charles-Tijmens [2005] ECR I-7037, paragraph 34.

(10) Case C-184/04 Uudenkaupungin kaupunki [2006] ECR I-3039.

(11) Idem, paragraph 49. Emphasis added.

(12) Emphasis added.

(13) The Italian version is particularly clear in that regard: ‘... a qualunque spesa legata all’acquisto di beni, indipendente-mente dalla sua natura o dal suo oggetto’.

(14) For the founder Member States of the European Community and for those States which acceded before 1 January

(197) 8, which adopted their legislation concerning exclusion from the right to deduct VAT when the Second Directive was still in force, Article 11(4) of the Second Directive is still directly relevant. On the other hand, for Member States which acceded after the Second Directive was repealed by the Sixth Directive, application of the criterion ‘certain goods or services’ is only indirect or, in other words, incorporated into the conditions for application of Arti cle

(17) (6) of the Sixth Directive.

(15) See in that regard, inter alia, the judgments in Royscot, paragraph 24, and Charles and Charles-Tijmens, paragraph 33.

(16) See Commission v France, paragraphs 21 and 22; Case C-409/99 Metropol and Stadler [2002] ECR I-81, paragraph 45; Danfoss and AstraZeneca, paragraph 32; and Magoora, paragraph 36.

(17) C ommission v France, paragraph 22; Danfoss and Astra-Zeneca, paragraph 32; Magoora, paragraph 36; and Puffer, paragraph 85.

(18) See inter alia, regarding that obligation, Magoora, paragraph 44 and the case-law cited.