C-582/08 Commission v United Kingdom

JUDGMENT OF THE COURT (Third Chamber)

15 July 2010 (*)

(Failure of a Member State to fulfil obligations – Value-added tax –Directive 2006/112/EC – Articles 169 to 171 – Thirteenth Directive 86/560/EEC – Article 2 – Refund – Taxable person not established in the European Union – Insurance transactions – Financial transactions)

In Case C‑582/08,

ACTION under Article 226 EC for failure to fulfil obligations, brought on 29 December 2008,

European Commission, represented by R. Lyal and M. Afonso, acting as Agents, with an address for service in Luxembourg,

applicant,

v

United Kingdom of Great Britain and Northern Ireland, represented by I. Rao and S. Hathaway, acting as Agents, and K. Lasok QC,

defendant,

THE COURT (Third Chamber),

composed of K. Lenaerts, President of the Chamber, E. Juhász, G. Arestis, T. von Danwitz (Rapporteur) and D. Šváby, Judges,

Advocate General: N. Jääskinen,

Registrar: M.-A. Gaudissart, Head of Unit,

having regard to the written procedure and further to the hearing on 10 February 2010,

after hearing the Opinion of the Advocate General at the sitting on 20 May 2010,

gives the following

Judgment

Legal context and the dispute

1By its application, the Commission of the European Communities asks the Court for a declaration that, by denying recovery of input value added tax (‘VAT’) in respect of certain transactions carried out by taxable persons not established in the territory of the European Union, the United Kingdom of Great Britain and Northern Ireland has failed to comply with its obligations under Articles 169 to 171 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ 2006 L 347, p. 1) (‘the VAT Directive’), and with Article 2(1) of the Thirteenth VAT Directive 86/560/EEC of 17 November 1986 on the harmonisation of the laws of the Member States relating to turnover taxes – Arrangements for the refund of value added tax to taxable persons not established in Community territory (OJ 1986 L 326, p. 40) (‘the Thirteenth Directive’).

Legal background

European Union legislation

2Article 17(3) and (4) of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment (OJ 1977 L 145, p. 1), as amended by Council Directive 2004/66/EC of 26 April 2004 (OJ 2004 L 168, p. 35) (‘the Sixth Directive’), in the version resulting from Article 28f(1) thereof, provides:

‘3. Member States shall also grant every taxable person the right to the deduction or refund of the [VAT] referred to in paragraph 2 in so far as the goods and services are used for the purposes of:

(a) transactions relating to the economic activities referred to in Article 4(2), carried out in another country, which would be deductible if they had been performed within the territory of the country;

(b) transactions which are exempt pursuant to Articles 14(1)(g) and (i), 15, 16 (1)(B), (C), (D) or (E) or (2) or 28c(A) and (C);

(c) any of the transactions exempt pursuant to Article 13(B)(a) and (d)(1) to (5), when the customer is established outside the Community or when those transactions are directly linked with goods to be exported to a country outside the Community.

4. The refund of [VAT] referred to in paragraph 3 shall be effected:

– to taxable persons who are not established within the territory of the country but who are established in another Member State in accordance with the detailed implementing rules laid down in Directive 79/1072/EEC,

– to taxable persons who are not established within the territory of the Community, in accordance with the detailed implementing rules laid down in Directive 86/560/EEC.

…’

3Article 17(4) of the Sixth Directive provided, in its initial version:

‘The Council shall endeavour to adopt before 31 December 1977, on a proposal from the Commission and acting unanimously, Community rules laying down the arrangements under which refunds are to be made in accordance with paragraph 3 to taxable persons not established in the territory of the country. Until such Community arrangements enter into force, Member States shall themselves determine the method by which the refund concerned shall be made. Where the taxable person is not resident in the territory of the Community, Member States may refuse the refund or impose supplementary conditions.’

4Articles 169 to 171 of the VAT Directive replaced Article 17(3) and (4) of the Sixth Directive from 1 January 2007.

5Article 169 of the VAT Directive provides:

‘In addition to the deduction referred to in Article 168, the taxable person shall be entitled to deduct the VAT referred to therein in so far as the goods and services are used for the purposes of the following:

(a) transactions relating to the activities referred to in the second subparagraph of Article 9(1), carried out outside the Member State in which that tax is due or paid, in respect of which VAT would be deductible if they had been carried out within that Member State;

(b) transactions which are exempt pursuant to Articles 138, 142 or 144, Articles 146 to 149, Articles 151, 152, 153 or 156, Article 157(1)(b), Articles 158 to 161 or Article 164;

(c) transactions which are exempt pursuant to points (a) to (f) of Article 135(1), where the customer is established outside the Community or where those transactions relate directly to goods to be exported out of the Community.’

6Article 170 of the VAT Directive provides:

‘All taxable persons who, within the meaning of Article 1 of Directive 79/1072/EEC, Article 1 of Directive 86/560/EEC and Article 171 of this Directive, are not established in the Member State in which they purchase goods and services or import goods subject to VAT shall be entitled to obtain a refund of that VAT in so far as the goods and services are used for the purposes of the following:

(a) transactions referred to in Article 169;

(b) Transactions for which the tax is solely payable by the customer in accordance with Articles 194 to 197 or Article 199.’

7Article 171 of the VAT Directive states:

‘1. VAT shall be refunded to taxable persons who are not established in the Member State in which they purchase goods and services or import goods subject to VAT but who are established in another Member State, in accordance with the detailed implementing rules laid down in Directive 79/1072/EEC.

…

2. VAT shall be refunded to taxable persons who are not established within the territory of the Community in accordance with the detailed implementing rules laid down in Directive 86/560/EEC.

…

3. Directives 79/1072/EEC and 86/560/EEC shall not apply to the supply of goods which is, or may be, exempted pursuant to Article 138 where the goods thus supplied are dispatched or transported by or on behalf of the person acquiring the goods.’

8The exempt transactions referred to in Article 169(c) of the VAT Directive concern particularly, according to Article 135(1)(a) to (f), insurance and financial transactions such as those specified by the latter provision.

9Article 2 of Eighth Council Directive 79/1072/EEC of 6 December 1979 on the harmonisation of the laws of the Member States relating to turnover taxes – Arrangements for the refund of value added tax to taxable persons not established in the territory of the country (OJ 1979 L 331, p. 11) (‘the Eighth Directive’), provides:

‘Each Member State shall refund to any taxable person who is not established in the territory of the country but who is established in another Member State, subject to the conditions laid down below, any [VAT] charged in respect of services or movable property supplied to him by other taxable persons in the territory of the country or charged in respect of the importation of goods into the country, in so far as such goods and services are used for the purposes of the transactions referred to in Article 17(3)(a) and (b) of Directive 77/388/EEC and of the provision of services referred to in Article 1(b).’

10Article 8 of the Eighth Directive, which was repealed by Article 7 of the Thirteenth Directive, provided:

‘In the case of taxable persons not established in the territory of the Community, Member States may refuse refunds or impose special conditions.

Refunds may not be granted on terms more favourable than those applied in respect of taxable persons established in the territory of the Community.’

11The Explanatory Memorandum in the Proposal for the Eighth Council Directive (COM (77) 721 final of 3 January 1978, p. 3) (‘Proposal for the Eighth Directive’), submitted by the Commission, states as regards Article 2 of that proposal:

‘The reference in Article 17(4) of the Sixth Directive (“in accordance with paragraph 3”) has the effect that the refund is to be made solely in respect of the tax charged on the purchases of goods and services or on the importation of goods used by the foreign taxable person for the activities specified in Article 17(3) of the Directive. Of the three cases referred to in subparagraphs (a), (b) and (c) of this paragraph, only the first two would seem to be relevant.

...

As for the cases covered by subparagraph (c) of Article 17(3) of the Directive, a person from a member country carrying out insurance or banking transactions referred to in that paragraph can never, since such transactions invariably occur in a third country, be regarded as carrying out a transaction in the country of refund: consequently, these cases rank with those referred to in subparagraph (a) (foreign taxable person not carrying out any taxable transaction in the country of refund) and are governed by the rules set out therein.’

12Article 2 in the version of the Proposal for the Eighth Directive, which was approved by the European Parliament, referred to the refund of VAT in respect of goods and services ‘in so far as such goods and services are used for the purposes of the transactions referred to in Article 17(3) of the Sixth Council Directive of 17 May 1977’.

13The second recital in the preamble to the Thirteenth Directive states:

‘Whereas there is a need to ensure the harmonious development of trade relations between the Community and third countries based on the provisions of Directive 79/1072/EEC, while taking account of the varying situations encountered in third countries.’

14Article 2 of the Thirteenth Directive provides:

‘1. Without prejudice to Articles 3 and 4, each Member State shall refund to any taxable person not established in the territory of the Community, subject to the conditions set out below, any [VAT] charged in respect of services rendered or moveable property supplied to him in the territory or the country by other taxable persons or charged in respect of the importation of goods into the country, in so far as such goods and services are used for the purposes of the transactions referred to in Article 17(3)(a) and (b) of Directive 77/388/EEC or of the provision of services referred to in point 1(b) of Article 1 of this Directive.

2. Member States may make the refunds referred to in paragraph 1 conditional upon the granting by third States of comparable advantages regarding turnover taxes.

…’

15Article 4 of the Thirteenth Directive provides:

‘1. For the purposes of this Directive, eligibility for refunds shall be determined in accordance with Article 17 of Directive 77/388/EEC as applied in the Member State where the refund is paid.

2. Member States may, however, provide for the exclusion of certain expenditure or make refunds subject to additional conditions.

3. This Directive shall not apply to supplies of goods which are or may be exempted under point 2 of Article 15 of Directive 77/388/EEC.’

16According to Article 5 of Council Directive 2008/9/EC of 12 February 2008 laying down detailed rules for the refund of value added tax, provided for in Directive 2006/112/EC, to taxable persons not established in the Member State of refund but established in another Member State (OJ 2008 L 44, p. 23), which replaced the Eighth Directive with effect from 1 January 2010:

‘Each Member State shall refund to any taxable person not established in the Member State of refund any VAT charged in respect of goods or services supplied to him by other taxable persons in that Member State or in respect of the importation of goods into that Member State, in so far as such goods and services are used for the purposes of the following transactions:

(a) transactions referred to in Article 169(a) and (b) of Directive 2006/112/EC;

(b) transactions to a person who is liable for payment of VAT in accordance with Articles 194 to 197 and Article 199 of Directive 2006/112/EC as applied in the Member State of refund.

Without prejudice to Article 6, for the purposes of this Directive, entitlement to an input tax refund shall be determined pursuant to Directive 2006/112/EC as applied in the Member State of refund.’

National legislation

17As a result of Sections 26 and 39 of the Value Added Tax Act 1994, article 3 of the Value Added Tax (Input Tax) (Specified Supplies) Order 1999 and regulation 190 of the Value Added Tax Regulations 1995 in the version thereof following the Value Added Tax (Amendment) (No. 4) Regulations 2004, traders not established in the European Union are not entitled to recover input tax charged on the transactions referred to in Article 169(c) of the VAT Directive.

Pre-litigation procedure

18On 13 January 2006, the Commission informed the United Kingdom authorities of its view that Article 2(1) of the Thirteenth Directive should not be understood as excluding the refund of VAT charged on goods or services used for the purposes of the insurance and financial transactions mentioned in Article 17(3)(c) of the Sixth Directive, the contents of which have been repeated in Article 169(c) of the VAT Directive. By e-mail of 12 May 2006, the United Kingdom expressed the opposite view, maintaining that its legislation was in compliance with the applicable European Union legislation.

19The Commission therefore decided to initiate the procedure under Article 226 EC and sent the United Kingdom a letter of formal notice on 12 October 2006 accusing the United Kingdom of having failed to fulfil its obligations under Article 17(3) and (4) of the Sixth Directive and under Article 2(1) of the Thirteenth Directive.

20Since it was not convinced by the arguments put forward by the United Kingdom in its letter of 14 December 2006, the Commission, by letter of 27 June 2007, issued a reasoned opinion to the United Kingdom inviting it to take the necessary measures to comply with the requirements of Articles 169 to 171 of the VAT Directive and Article 2(1) of the Thirteenth Directive within two months of its receipt.

21The United Kingdom replied to the reasoned opinion by letter of 29 August 2007, in which it confirmed its interpretation of the Thirteenth Directive and of Articles 169 to 171 of the VAT Directive. The Commission, disagreeing with that interpretation and maintaining its own position concerning the incompatibility of the United Kingdom’s legislation in that respect with the requirements of European Union law, decided to bring the present action.

The action

22As a preliminary point, it must be observed that it is common ground that, under United Kingdom law, traders established outside the European Union are not entitled to recover input tax in that Member State in respect of goods or services used for the purposes of transactions falling within the categories mentioned in Article 169(c) of the VAT Directive, namely certain insurance and financial transactions.

23Therefore, this action concerns solely the question whether Articles 169 to 171 of the VAT Directive and Article 2(1) of the Thirteenth Directive confer such a right on traders established outside the European Union.

24According to Article 2(1) of the Thirteenth Directive, each Member State is to refund to any taxable person not established in the territory of the European Union any VAT charged in respect of services rendered or moveable property supplied to him in the territory of the country by other taxable persons or charged in respect of the importation of goods into the country, in so far as such goods and services are used for the purposes of the transactions referred to in Article 17(3)(a) and (b) of the Sixth Directive.

25As far as concerns the reference to Article 17(3)(a) and (b) of the Sixth Directive in Article 2(1) of the Thirteenth Directive, it must be observed, first, that the wording of the Thirteenth Directive was not altered after the entry into force of the VAT Directive, Article 169(a) and (b) of which replaced Article 17(3)(a) and (b) of the Sixth Directive. Article 2(1) of the Thirteenth Directive must, therefore, be understood as referring to Article 169(a) and (b) of the VAT Directive.

26Second, it must be observed that the insurance and banking transactions at issue in the present case are referred to in Article 169(c) of the VAT Directive.

27The United Kingdom, relying on the wording of Article 2(1) of the Thirteenth Directive, which expressly mentions only the transactions referred to in Article 169(a) and (b), contends that there is no entitlement to a refund of VAT with respect to the transactions referred to in Article 169(c) thereof.

28On the other hand, the Commission, while accepting that Article 2(1) of the Thirteenth Directive does not refer to the transactions covered by Article 169(c) of the VAT Directive, submits, relying on arguments derived from the drafting history, the general scheme and the purpose of the relevant provisions, that Article 2(1) of the Thirteenth Directive, read in conjunction with Article 169 to 171 of the VAT Directive, must be understood as also conferring a right to a refund of VAT with respect to the transactions referred to in Article 169(c) of the VAT Directive.

29Therefore, it must be determined whether the arguments put forward by the Commission in support of its interpretation of Article 2(1) of the Thirteenth Directive and Articles 169 to 171 of the VAT Directive are capable of justifying an interpretation to the effect that those articles confer a right to a refund of VAT for the transactions covered by Article 169(c) of the VAT Directive even though the wording of Article 2(1) of the Thirteenth Directive is clear and precise and refers only to Article 169(a) and (b) of the VAT Directive.

30The Commission argues that the right of traders established outside the European Union to recover the input tax paid in a Member State for the purposes of the transactions referred to in Article 169(c) of the VAT Directive derives from Articles 169 to 171 of that directive. Article 170 establishes that right with respect to all the transactions referred to in Article 169 and does not provide for any derogation. Since the VAT Directive lays down the basic rules, while the Thirteenth Directive contains only implementing provisions regulating the arrangements for refund, the unconditional wording of Article 170 of the VAT Directive must take precedence over the wording of Article 2 of the Thirteenth Directive.

31It is true that Article 170 of the VAT Directive provides, in general terms, as did Article 17(3) of the Sixth Directive, for a right to the refund of input tax where the goods and services subject to VAT are used for the ‘transactions referred to in Article 169’ of the VAT Directive.

32Similarly, it is common ground that the purpose of the Eighth Directive is to lay down detailed arrangements for the refund of VAT paid in a Member State by taxable persons established in another Member State, its objective being therefore to harmonise the right to refund as provided for in Article 17(3) of the Sixth Directive (see, inter alia, Case C‑136/99 Monte dei Paschi Di Siena [2000] ECR I‑6109, paragraph 20, and Case C-35/05 Reemtsma Cigarettenfabriken [2007] ECR I-2425, paragraph 26); that is also the case with respect to the Thirteenth Directive as far as concerns taxable persons established in non‑member countries.

33However, it cannot be concluded therefrom, as the Commission submits, that Article 170 of the VAT Directive permits a derogation from the clear and precise wording of Article 2(1) of the Thirteenth Directive.

34The Thirteenth Directive does not merely regulate the formal arrangements for implementing the right to the refund of VAT, but provides for a number of derogations from that right, as the Commission acknowledges in its written observations without challenging the validity. Among those derogations, in accordance with Article 2(2) of the Thirteenth Directive, is the Member States’ power to make the refund conditional upon the granting by third States of comparable advantages and, in accordance with Article 4(2) thereof, to provide for the exclusion of certain expenditure or to make refunds subject to additional conditions.

35Therefore, the provisions of the Thirteenth Directive and, in particular, Article 2(1) thereof, must be considered as a lex specialis as compared with Articles 170 and 171 of the VAT Directive, preventing the right to a refund, set out in general terms in Article 170, from overriding the clear and precise wording of Article 2(1) of the Thirteenth Directive.

36It follows that the question whether the Member States are required to grant a right to the refund of VAT for the transactions referred to in Article 169(c) of the VAT Directive to taxable persons established outside the European Union must be determined solely by reference to Article 2(1) of the Thirteenth Directive.

37As regards the interpretation of Article 2(1) of that directive, the Commission submits, first of all, that it is clear from the drafting history that it cannot be presumed that the legislature of the European Union, by just mentioning in Article 2(1) of the Thirteenth Directive the transactions referred to in Article 169(a) and (b), wished to exclude the refund of VAT for the transactions referred to in Article 169(c). The wording of Article 2(1) of the Thirteenth Directive is based on an erroneous interpretation by the legislature of the European Union when it adopted Article 2 of the Eighth Directive, which is in almost identical terms to, and served as a model for, the drafting of the former provision.

38In that connection, the Commission relies, first, on the Explanatory Memorandum to the Proposal for the Eighth Directive and asserts that the legislature, when drafting the Eighth Directive, did not refer to Article 17(3)(c) of the Sixth Directive because it erroneously considered that the transactions concerned were already taken into account in Article 17(3)(a) thereof, as referred to in Article 2 of the Eighth Directive.

39Next, according to the Commission, the logic of the VAT system requires a right to a refund of VAT to be granted for the transactions referred to in Article 169(c) of the VAT Directive. According to that logic and international practice, no tax should be due when goods or services are exported. As regards, in particular, exempt transactions such as the insurance and financial transactions for which it is not usually possible to recover input tax, Article 169(c) of the VAT Directive is intended to make possible the recovery of the VAT inherent in the price of purchasing goods and services used for the performance of those transactions. Thus, the grant of a right to a refund of VAT prevents the trader established in the European Union from being disadvantaged compared with his competitors outside the Union.

40Finally, the Commission takes the view that the comparison made between Article 2(1) of the Thirteenth Directive and Article 2 of the Eighth Directive shows that those two provisions must be interpreted in the same way. Notwithstanding the almost identical wording of those provisions, the United Kingdom construes Article 2 of the Eighth Directive as including the transactions mentioned in Article 169(c) of the VAT Directive, the position thus adopted by that Member State being therefore inconsistent. According to the Commission, if the interpretation of Article 2(1) of the Thirteenth Directive put forward by the United Kingdom were correct, it should also apply to Article 2 of the Eighth Directive, which would lead to repercussions for all the Member States which adopt such an interpretation of that article.

41First of all, the latter argument must be dismissed as irrelevant.

42The present action for failure to fulfil obligations only concerns whether the United Kingdom has failed to fulfil its obligations under Articles 169 to 171 of the VAT Directive and Article 2(1) of the Thirteenth Directive by refusing the recovery of input tax for the transactions referred to in Article 169(c) of the VAT Directive carried out by taxable persons not established in the territory of the European Union.

43Neither the fact that the United Kingdom and the other Member States grant such a right to a refund of VAT to traders established within the European Union, by virtue of the Eighth Directive, nor the absence of any reasons justifying a divergent practice as regards the traders referred to by that directive, on the one hand, and those covered by the Thirteenth Directive, on the other, nor any repercussions at Member State level in the absence of such reasons, are factors capable of supporting the Commission’s interpretation of Article 2(1) of the Thirteenth Directive.

44Next, as regards the argument based on the drafting history, it should be noted that Article 2 of the Proposal for the Eighth Directive, in which the Explanatory Memorandum referred to by the Commission appears, made reference, without further explanation, to ‘transactions referred to in Article 17(3) of the Sixth Directive’. Therefore, it cannot be regarded as established that the – according to the Commission – incorrect assessment in the Explanatory Memorandum was in fact the basis for the wording of Article 2 of the Eighth Directive or that of Article 2(1) of the Thirteenth Directive.

45Furthermore, Article 5 of Directive 2008/9, which replaced the Eighth Directive, refers, like Article 2 of the Eighth Directive, to Article 169 ‘(a) and (b)’ of the VAT Directive. Therefore, the Commission’s argument implies, first, that the legislature of the European Union committed an error when it adopted the Eighth Directive, which was reproduced in the Thirteenth Directive and, second, that the legislature committed the same error when it adopted Directive 2008/9.

46As regards the alleged error and the Commission’s argument that its reading of the relevant provision is also consistent with the logic of the common system of VAT, it must be observed that, even assuming the Commission’s submissions are correct, it is not for the Court, as the Advocate General observed in point 65 of his Opinion, to make such an interpretation with the aim of correcting Article 2(1) of the Thirteenth Directive.

47In that connection, the Court held in Case C-475/01 Commission v Greece [2004] ECR I-8923 that the Hellenic Republic could legitimately base its national legislation on the clear wording of Article 23(2) of Council Directive 92/83/EEC of 19 October 1992 on the harmonisation of the structures of excise duties on alcohol and alcoholic beverages (OJ 1992 L 316, p. 21) authorising it to apply to OUZO a rate of excise duty lower than the minimum rate. Thus, the Court dismissed the Commission’s action alleging a failure by that Member State to fulfil its obligations under the first subparagraph of Article 90 EC, and in which it submitted that even where there is an explicit authorisation in secondary legislation, the Member States were in no way dispensed from the obligation to comply with primary legislation, so that, where a national provision was irreconcilable with primary legislation, the Member State was not entitled to rely on that authorisation.

48In the same way, the United Kingdom, whose national law complies with the clear and precise wording of Article 2(1) of the Thirteenth Directive, cannot be accused of failing to fulfil its obligations specifically arising from that provision because it allegedly failed to interpret that provision with the aim of correcting it, in order to comply with the overall logic of the common system of VAT and to remedy an error of the legislature of the European Union alleged by the Commission which, it claims, is apparent from the Explanatory Memorandum in the Proposal for the Eighth Directive.

49According to settled case-law, the principle of legal certainly requires that Community rules enable those concerned to know precisely the extent of the obligations which are imposed on them. Individuals must be able to ascertain unequivocally what their rights and obligations are and take steps accordingly (see Case C-345/06 Heinrich [2009] ECR I‑1659, paragraph 44 and the case-law cited).

50It is true that that case-law refers to the relationship between individuals and public authorities. However, as the Advocate General observed in point 64 of his Opinion, that case-law is also relevant in the context of the transposition of a directive in the area of taxation.

51The Court cannot, in the face of the clear and precise wording of a provision such as Article 2(1) of the Thirteenth Directive, interpret that provision with the intention of correcting it and thereby extending the obligations of the Member States relating to it (see, by analogy, Case C‑48/07 Les Vergers du Vieux Tauves [2008] ECR I-10627, paragraph 44).

52It follows from all of the foregoing that the Commission’s action must be dismissed.

Costs

53Under 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 United Kingdom has applied for costs and the Commission has been unsuccessful in its pleas, the latter must be ordered to pay the costs.

Operative part

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

1. Dismisses the action;

2. Orders the European Commission to pay the costs.

Signatures

[Signatures]

Notes

* Language of the case: English.

OPINION OF ADVOCATE GENERAL

Jääskinen

delivered on 20 May 2010 (1)

Case C‑582/08

European Commission

v

United Kingdom of Great Britain and Northern Ireland

(Failure of a Member State to fulfil obligations – Directive 2006/112/EC – Articles 169, 170 and 171 – Thirteenth Directive 86/560/EEC – Article 2 – Refund – Taxable persons not established in the EU – Insurance transactions – Financial transactions)

Introduction

1The present infringement action concerns the right of third‑country persons established outside the European Union, providing financial and insurance services to customers who are likewise outside the EU, to deduct or refund input VAT on goods and services obtained in the EU.

2The Commission asks the Court to declare that by denying the recovery of input tax in respect of certain transactions, the United Kingdom has failed to fulfil its obligations under Articles 169, 170 and 171 of the VAT Directive (2) and Article 2(1) of the Thirteenth VAT Directive. (3)

3All taxable persons are, according to Articles 169 and 170 of the VAT Directive, entitled to deduct or obtain a refund for input tax in the three situations listed in Article 169. (4) Article 169(c) of the VAT Directive (5) relates to financial and insurance transactions when the customer is established outside the EU.

4However, the detailed implementing rules for obtaining refunds, (6) as contained in the Thirteenth VAT Directive in relation to third‑country persons, do not mention a possibility to obtain a refund in the case of financial and insurance transactions. Article 2(1) of that directive states that Member States shall refund any VAT charged in so far as the goods or services are used for the purposes of transactions contained in Article 169(a) and (b) of the VAT Directive, (7) but it does not make an express reference to financial and insurance services contained in subparagraph (c).

5The Commission is of the opinion that financial and insurance transactions should be read into Article 2(1) of the Thirteenth VAT Directive because such an obligation is inherent in the logic of the VAT system.

6The United Kingdom, on the other hand, submits that its legislation complies with the express wording of Article 2(1) of the Thirteenth VAT Directive, and that it has therefore not infringed EU law.

7Hence, the Court is faced with a simple but difficult choice between a literal interpretation of the provision and its purposive interpretation, which might fit better with the VAT system as a whole.

I – Legal context

European Union Law

– Sixth VAT Directive and VAT Directive

8The origin and scope of the right to deduct were first set out in Article 17 of the Sixth VAT Directive. (8) The VAT Directive, in force from 1 January 2007, (9) recast the Sixth VAT Directive but without intending to change its substance. (10) The corresponding provisions of Article 17 of the Sixth VAT Directive are now found in Articles 168 to 171 of the VAT Directive. (11)

9According to Articles 169 and 170 of the VAT Directive, (12) all taxable persons shall ‘be entitled to deduct’ or ‘obtain a refund’ for goods and services used for the purposes of the following:(13)

‘(a) transactions relating to the activities referred to in the second subparagraph of Article 9(1), (14) carried out outside the Member State in which that tax is due or paid, in respect of which VAT would be deductible if they had been carried out within that Member State;

(b) …; (15)

(c) transactions which are exempt pursuant to points (a) to (f) of Article 135(1), (16) where the customer is established outside the [EU] or where those transactions relate directly to goods to be exported out of the [EU].’

10Article 171 of the VAT Directive (17) states that ‘VAT shall be refunded … in accordance with the detailed implementing rules laid down in’ the Eighth VAT Directive (in relation to persons established in the EU), and the Thirteenth VAT Directive (in relation to persons established outside the EU).

– Eighth VAT Directive

11Article 2 states:

‘Each Member State shall refund to any taxable person who is not established in the territory of the country but who is established in another Member State, subject to the conditions laid down below, any value added tax charged in respect of services or movable property supplied to him by other taxable persons in the territory of the country or charged in respect of the importation of goods into the country, in so far as such goods and services are used for the purposes of the transactions referred to in Article 17(3)(a) and (b) of [the Sixth VAT Directive] and of the provision of services referred to in Article 1(b).’

12Thirteenth VAT Directive

13Article 2(1) of the Thirteenth VAT Directive is worded in a similar way. It states:

‘1. Without prejudice to Articles 3 and 4, each Member State shall refund to any taxable person not established in the territory of the Community, subject to the conditions set out below, any value added tax charged in respect of services rendered or movable property supplied to him in the territory or the country by other taxable persons or charged in respect of the importation of goods into the country, in so far as such goods and services are used for the purposes of the transactions referred to in Article 17(3)(a) and (b) of [the Sixth VAT Directive] or of the provision of services referred to in point 1(b) of Article 1 of this Directive.’

14The wording of the Thirteenth Directive still refers to the provisions of the Sixth Directive, that is to Article 17(3)(a) and (b) thereof, despite the subsequent entry into force of the VAT Directive.

National law

15As a result of sections 26 and 39 of the Value Added Tax Act 1994, Article 3 of the Value Added Tax (Input Tax) (Specified Supplies) Order 1999 and Regulation 190 of the Value Added Tax (amendment) (No. 4) Regulations 2004, traders not established in the EU are not entitled to recover input tax charged on the transactions referred to in Article 169(c) of the VAT Directive.

II – Pre‑litigation procedure

16The United Kingdom amended its legislation in 2004 as a result of a judgment of the Court of Appeal of England and Wales, which held that, since the transactions referred to in Article 17(3)(c) of the Sixth VAT Directive were not referred to in Article 2(1) of the Thirteenth VAT Directive, there was no entitlement to deduct input tax. (18)

17Due to the change, the Commission sent a letter of formal notice to the United Kingdom questioning the compatibility of the United Kingdom’s new legislation with EU law. Since it was not satisfied with the United Kingdom’s responses to its letter of formal notice and subsequent reasoned opinion, it brought the present action under Article 226 EC. (19)

III – Analysis

A – The temporal scope of application

18The United Kingdom submits that the Commission’s action for a failure to fulfil its obligations relates to the period from 1 January 2007, the date that the VAT Directive came into force, because the reasoned opinion only mentions Articles 169, 170 and 171 of the VAT Directive, and not Article 17(3) and (4) of the Sixth VAT Directive. Article 17(3) and (4) is only mentioned in the letter of formal notice, which was sent to the United Kingdom before the VAT Directive came into force.

19The Commission, on the other hand, observes that this does not affect the present action, since the wording of the articles of the two directives does not differ in any significant way.

20The Court’s case‑law has consistently held that an action for infringement may be based only on the arguments and pleas in law already set out in the reasoned opinion. (20)

21However that does not, in my view, relate to situations such as in the present case. The aim of such a rule is to ensure the Member State’s right to defence is observed, and that it knows the case stated against it. (21)

22In the present case there is no danger of infringing those rights. The arguments and pleas in law are the same in the letter of formal notice as in the reasoned opinion. The United Kingdom’s attempt to limit the action cannot, in my view, succeed since the intention of the VAT Directive was to recast the Sixth VAT Directive without changing the substance. (22) Furthermore, the article identified by the Commission in the letter of formal notice is expressly equated to the articles identified in the reasoned opinion. (23) Had the Council intended to alter the legislative regime that preceded the VAT Directive it would have identified Articles 169 to 171 as provisions that introduced changes in the pre‑existing regime. (24) It has not done so.

23Therefore the action should not be limited to the time frame submitted by the United Kingdom.

B – Do Member States have an obligation to refund third‑country persons carrying out financial and insurance transactions?

24In the context of an infringement procedure it is up to the Commission to demonstrate that the Member State has failed to fulfil its obligations based on the Treaty.

25That onus is difficult to satisfy in this case since, in the light of clear and unambiguous wording of a provision, extraordinary reasons would be needed in order to interpret the provision in a different manner. (25)

1. The wording of Article 2(1) of the Thirteenth VAT Directive

26The literal interpretation of Article 2(1) of the Thirteenth VAT Directive does not allow for refunds to third‑country persons carrying out financial and insurance transactions.

27The interpretation adopted by the Court should not be too far removed from the actual wording used in the provision. If a provision expressly states that it applies to subparagraphs (a) and (b), it cannot be interpreted as applying to subparagraph (c) without departing from the meaning of the language used in that provision.

28However, the literal interpretation and the clear meaning may not be synonymous (26) as the literal meaning of a provision may be ambiguous.

29Where the express wording of the provision is ambiguous or contradictory, the Court may reject a literal interpretation in favour of another which is more compatible with the objectives of the legislation in question.

30On the one hand the meaning of Article 2(1) of the Thirteenth VAT Directive is not ambiguous: as the United Kingdom pointed out, the text refers to two of the three subparagraphs of the Sixth VAT Directive by using numbers and letters, that is, symbols and not words. Such symbols, unlike words, cannot be ambiguous, so there is, at first sight, no need to explore their meaning.

31However, there is an incoherence between Article 2(1) of the Thirteenth VAT Directive and Article 169 of the VAT Directive.

32It is therefore necessary to analyse the objectives of Article 169 of the VAT Directive, and of Article 2(1) of the Thirteenth VAT Directive. The preamble to the directives does not refer to the objectives of those provisions. In those circumstances it is useful to analyse the travaux préparatoires relating to those provisions.

2. On the interpretation of Article 2(1) of the Thirteenth VAT Directive

33The reasons for the adoption of Article 169(c) of the VAT Directive or Article 17(3) of the Sixth VAT Directive have not been clearly stated in any document. However, some commentators have suggested that the possibility to deduct or refund was granted in order to ensure the competitive neutrality of EU financial and insurance service providers on international financial markets by introducing a possibility to alleviate tax cascading, that is, a non‑recoverable hidden input VAT on purchases of goods and services burdening their cost‑structure. (27)

34In the EU, financial and insurance services are exempt from VAT, (28) implying that there should be no right to deduct input tax since exempt services are not subject to output tax. (29) Without a possibility to deduct or of a corresponding refund, taxable persons established in the EU and carrying out financial and insurance transactions will be forced to absorb non‑deductible input tax in their dealings with non‑EU customers. Since they will pass on the inability to deduct input VAT to their customers through higher costs, those EU taxable persons will be at a competitive disadvantage compared to taxable persons from other jurisdictions whose cost structure does not include hidden VAT.

35Thus, a possibility to deduct or refund appears desirable in order to maintain the international competitiveness of the EU financial sector.

36Nevertheless, this policy choice does not entail that similar possibilities should be awarded to third‑country persons carrying out financial and insurance transactions.

37Whilst it is true that all taxable persons, including those established outside the EU, have the possibility of obtaining refunds because the definition of ‘taxable person’ under the EU VAT system is a global one, (30) persons not established in the EU were not given an unconditional right to claim refunds on the basis of Article 17(3) of the Sixth VAT Directive. Article 17(4) of that directive originally permitted Member States to refuse refunds or to impose supplementary conditions for persons not established in the EU. Article 17(4) of the Sixth VAT Directive was later replaced to include references to, at first, the Eighth VAT Directive, and then also to the Thirteenth VAT Directive. In the Thirteenth VAT Directive certain limitations in relation to the granting of a refund are still possible: Member States can make refunds conditional upon the granting of comparable advantages by third States, (31) and Member States may require the appointment of a tax representative. (32)

38The Thirteenth VAT Directive was adopted only after a lengthy discussion within the Council, made necessary in particular by the fact that no agreement could be reached on a list of expenditures ineligible for refund. (33)

39Its preamble states that the Thirteenth VAT Directive aimed to develop harmonious trading relations with third countries. (34)

40According to the Explanatory Memorandum to the proposal for a Thirteenth VAT Directive, the aim of the directive was also to eliminate the differential treatment of non‑EU established traders by Member States, since such differences were causing a deflection of trade within the EU. (35)

41Furthermore, the Explanatory Memorandum to the proposal for a Thirteenth VAT Directive expressly referred to the regime and discussions leading up to the adoption of the Eighth VAT Directive. (36) Reading those two Explanatory Memoranda together, it is clear that the Thirteenth VAT Directive’s aim was to extend the treatment accorded to EU traders, to those established outside the EU.

42To that end the travaux préparatoires to the Eighth VAT Directive indicate that the Eighth VAT Directive was considered no more than a first measure implementing the principle of the refunding of VAT to all non‑resident taxable persons, which would eventually be followed with proposals for settling the problem of refunding taxable persons resident in third countries. (37) Indeed, the European Parliament also considered the distinction between taxable persons established in the Community and those not established in the Community to be unsatisfactory since this introduced an element of accumulation in the levying of the tax, which was contrary to the principle of the VAT system. (38)

43Thus, the Thirteenth VAT Directive was addressing some of the same problems as the Eighth VAT Directive: the avoidance of the deflection of trade within the EU as a result of differing refund rules applied by Member States.

44The Commission takes this to mean that these two directives should be interpreted in the same way. According to it, it is not possible to hold that financial and insurance services are included in one directive but not in the other.

45Whether the interpretation given to a similarly worded provision in another directive can be transposed by analogy must be determined in light of the objectives of the two directives. (39)

46In the present case, despite the partly overlapping aims of the Eighth and Thirteenth VAT Directives, I do not think that they should be interpreted in the same way since the Eighth VAT Directive deals with taxable persons established in the EU, while the Thirteenth VAT Directive deals with those established in third countries.

47The United Kingdom justifies treating taxable persons carrying out financial and insurance transactions who fall under the Eighth VAT Directive differently to those that are covered by the Thirteenth VAT Directive because the general principles of equal treatment and non‑discrimination found in the Treaties will apply to the former, but not the latter.

48This approach is consistent with the case‑law according to which any provision is to be interpreted in the light of higher legal norms and the interpretation that is compatible with those higher legal norms is to be preferred. (40) Thus, the treatment of taxable persons established in the EU may lead to different results than the treatment accorded to those that are not.

49The travaux préparatoires do not expressly say anything about the treatment of financial and insurance services. However it is, to my mind, not insignificant that the original proposal of the Eighth VAT Directive made a reference to Article 17(3) of the Sixth VAT Directive in its general form, while the directive finally adopted makes reference only to subparagraphs (a) and (b) of that article. That indicates that the legislator deliberately chose not to include financial and insurance services since this consequence must clearly have been noticed when amending the original Commission proposal.

50The Commission submits in the present case that the omission as to subparagraph (c) in the Eighth VAT Directive was a mistake. They refer to the Explanatory Memorandum to the proposal for the Eighth VAT Directive for support, where the Commission explains that situations falling under subparagraph (c) will probably be covered by subparagraph (a). The Commission now accepts that this view is almost certainly erroneous.

51I am not persuaded by the argument that the omission was a mistake. Even if it were true, that has, in my view, no legal relevance. I find it implausible that the mistake would not have been corrected by now, three decades after the Eighth VAT Directive was drafted, especially since Council Directive 2008/9/EC of 12 February 2008 laying down detailed rules for the refund of value added tax, provided for in [the VAT Directive], to taxable persons not established in the Member State of refund but established in another Member State (‘Directive 2008/9’), (41) which came into force in 2008, has preserved the alleged mistake.

52Therefore, in my view it cannot clearly be ascertained from the purpose or legislative history of Article 2(1) of the Thirteenth VAT Directive that Article 169(c) of the VAT Directive should be read into that provision.

3. Are there compelling reasons to deviate from the literal meaning?

53In my opinion, the only way for the Commission to succeed in this case is to demonstrate that there are compelling reasons to interpret Article 2(1) of the Thirteenth VAT Directive against its wording. That would, to my mind, require that the Thirteenth VAT Directive or Article 169(c) of the VAT Directive would be deprived of meaning or effectiveness unless a tacit reference to that provision would be read into Article 2 of the Thirteenth VAT Directive.

54An interpretation consistent with the principle underlying the text to be construed will be preferred over one that would render the principle ineffective or nugatory. (42)

55However, in the present case neither the Thirteenth Directive nor Article 169(c) of the VAT Directive would be deprived of meaning or effectiveness if the express wording of Article 2(1) of the Thirteenth VAT Directive was retained by the Court: Article 169(c) of the VAT Directive will still apply to persons established in the Member State concerned, and the Thirteenth VAT Directive will still be applicable for refunds in relation to persons not established in the EU to whom the two other subparagraphs of Article 169 of the VAT Directive apply.

56The Commission further submits that the Thirteenth VAT Directive is merely an implementing measure and so, in case of conflict, the entitlement to deduct and a refund provided for in the VAT Directive should prevail.

57The wording of Article 171 of the VAT Directive expressly refers to the Eighth and Thirteenth VAT Directives as ‘detailed implementing rules’. On this basis they could be considered as secondary to the VAT Directive.

58The Sixth and Thirteenth VAT Directives as well as the VAT Directive are, of course, equal in the hierarchy of norms since they are all Council directives adopted on the basis of the same Treaty provisions. Thus the application of the lex superior principle between them is precluded. There is a difference as to the relative normative rank of these directives between themselves and between them and the Treaties.

59In principle that means that the detailed implementing rules found in the Thirteenth VAT Directive can deviate from the provisions found in the Sixth VAT Directive. It is conceivable that the legislature, while implementing a prior legislative act, decides to leave some of its provisions unimplemented and thereby makes a tacit amendment of the act or at least leaves the implementation of those provisions subject to later decisions. (43)

60It is, however, reasonable to proceed on the assumption that where there is room for interpretation of a provision in the implementing act, the interpretation should strive for harmony with the original act.

61Indeed, the Court has held that the aim of the Eighth VAT Directive is not to undermine the Sixth VAT Directive, but rather to harmonise the right to refund as provided for in Article 17(3) of the Sixth VAT Directive. (44) Following that logic, Article 2 of the Eighth VAT Directive must be seen as reinforcing Article 17(3) of the Sixth VAT Directive, and the same is true of Article 2(1) of the Thirteenth VAT Directive.

4. Conclusion on the existence of an obligation to refund third‑country persons carrying out financial and insurance transactions

62As such, in my view there is, at this stage of development of EU law, no obligation for Member States to refund taxable persons mentioned in Article 169(c) of the VAT Directive who are not established in the EU.

63In my view, the various rules concerning deductions and refunds in the VAT system reflect choices of fiscal policy rather than logical or legal necessities. Historical examples show that the legislator may sometimes opt for regulative choices in the field of VAT that are incoherent or even dysfunctional from an economic or fiscal policy point of view. (45)

64Even if the reading of Article 2 of the Thirteenth VAT Directive proposed by the Commission might fit better with the current VAT scheme from the fiscal policy point of view, that reading does not reflect the text of that provision, especially since the legislator has consciously decided to remain silent on this issue. (46) It is therefore up to the legislator to fix the omission. (47)

65The United Kingdom position is based on the express and unambiguous text of a provision of the VAT Directive that it is required to transpose and to apply. Legal certainty precludes reading Article 169(c) of the VAT Directive into Article 2(1) of the Thirteenth VAT Directive when such an interpretation does not follow from the words used. (48) The United Kingdom can invoke this principle, which is especially important in the field of fiscal law where both the taxable persons and the tax authorities have to be able to rely on the text of EU legislation, as support of its position.

66I also find the Commission’s position problematic from a constitutional and institutional point of view. If the Commission really contends that there is a mistaken omission in the text of the Eighth and Thirteenth VAT Directives, it is unreasonable that it does not use its right of legislative initiative to remedy the situation. It does just the opposite: it simultaneously repeats the alleged mistake in its proposal for the new Directive 2008/9, and starts infringement proceedings against a Member State that is relying on the literal meaning of the text of the relevant provision.

67Finally, the Commission also invokes two practical problems of not reading Article 169(c) of the VAT Directive into Article 2(1) of the Thirteenth VAT Directive. Firstly, the fact that the interpretation of the Eighth VAT Directive would become uncertain because of the similar wording of Article 2 in the Eighth and Thirteenth VAT Directives, and secondly that the majority of Member States would be in breach of the Thirteenth VAT Directive since they currently allow refunds to persons not established in the EU and carrying out the transactions contained in Article 169(c) of the VAT Directive.

68In my opinion, neither of these practical considerations are valid legal reasons for reading Article 169(c) of the VAT Directive into Article 2(1) of the Thirteenth VAT Directive.

69Furthermore, such difficulties can be remedied by adopting appropriate legislative provisions to clarify the scope of the entitlement to refunds by persons not established in the EU and carrying out financial and insurance transactions if that is seen as necessary after the outcome of this case.

IV – Conclusion

70In light of the foregoing I conclude that the Commission has not been successful in showing that the United Kingdom has infringed Articles 169 to 171 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, or Article 2(1) of Thirteenth Council Directive 86/560/EEC of 17 November 1986 on the harmonisation of the laws of the Member States relating to turnover taxes – Arrangements for the refund of value added tax to taxable persons not established in Community territory. I therefore suggest that the Court of Justice dismiss the action.

Notes

(1) Original language: English.

(2) Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (‘the VAT Directive’) (OJ 2006 L 347, p. 1). Replacing Article 17(3) and (4) of the Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes ‑ Common system of value added tax: uniform basis of assessment (‘Sixth VAT Directive’), OJ 1977 L 145, p. 1.

(3) Thirteenth Council Directive 86/560/EEC of 17 November 1986 on the harmonisation of the laws of the Member States relating to turnover taxes – Arrangements for the refund of value added tax to taxable persons not established in Community territory (OJ 1986 L 326, p. 40, ‘the Thirteenth VAT Directive’).

(4) Articles 169 and 170 of the VAT Directive (ex Article 17(3) of the Sixth VAT Directive).

(5) Ex Article 17(3)(c) of the Sixth VAT Directive.

(6) By virtue of Article 171 of the VAT Directive (ex Article 17(4) of the Sixth VAT Directive), which refers to the Eighth Council Directive 79/1072/EEC of 6 December 1979 on the harmonisation of the laws of the Member States relating to turnover taxes - Arrangements for the refund of value added tax to taxable persons not established in the territory of the country (OJ 1979 L 331, p. 11, ‘the Eighth VAT Directive’) and Thirteenth VAT Directive.

(7) Ex Article 17(3)(a) and (b) of the Sixth VAT Directive.

(8) Article 17(2), (3) and (4) was amended by Article 28f of the Sixth VAT Directive, which was inserted by three directives: Council Directive 91/680/EEC of 16 December 1991 supplementing the common system of value added tax and amending Directive 77/388/EEC with a view to the abolition of fiscal frontiers(OJ L 376, p.1); Council Directive 95/7/EC of 10 April 1995 amending Directive 77/388/EEC and introducing new simplification measures with regard to value added tax - scope of certain exemptions and practical arrangements for implementing them (OJ L 102, p. 18); and Council Directive 2004/66/EC of 26 April 2004 adapting Directives 1999/45/EC, 2002/83/EC, 2003/37/EC and 2003/59/EC of the European Parliament and of the Council and Council Directives 77/388/EEC, 91/414/EEC, 96/26/EC, 2003/48/EC and 2003/49/EC, in the fields of free movement of goods, freedom to provide services, agriculture, transport policy and taxation, by reason of the accession of the Czech Republic, Estonia, Cyprus, Latvia, Lithuania, Hungary, Malta, Poland, Slovenia and Slovakia (OJ L 168, p. 35).

(9) Article 413 of the VAT Directive.

(10) Recitals 1 and 3 of the preamble to the VAT Directive.

(11) According to Annex XII of the VAT Directive, entitled ‘Correlation Table’, Article 28f(1) of the Sixth VAT Directive, replacing Article 17(3)(a), (b) and (c) of the Sixth VAT Directive, corresponds to Articles 169(a), (b) and (c) and Article 170(a) and (b) of the VAT Directive. Article 28(1) of the Sixth VAT Directive replacing Article 17(4) of the Sixth VAT Directive corresponds to Article 171 of the VAT Directive.

(12) Ex Article 17(3) of the Sixth VAT Directive.

(13) It is interesting to note that whereas the Sixth VAT Directive referred to the ‘right’ to deduct or obtain a refund, the VAT Directive talks about the ‘entitlement’ to deduct or obtain a refund. I do not, however, take this to make a substantive difference to the content of those provisions, since such change has not been expressly indicated by the legislator.

(14) That provision defines as an economic activity any activity of producers, traders or persons supplying services including mining and agricultural activities and activities of the professions, including the exploitation of intangible property for the purposes of obtaining income.

(15) This subparagraph is not relevant for our purposes. It deals with exemptions: related to the intra‑Community supply of goods; for certain transport services and international transport; on importation; relating to certain transactions treated as exports; for supply of services by intermediaries; for transactions relating to international trade.

(16) Ex Article 13B(a) and (d) of the Sixth VAT Directive, that is, financial and insurance transactions.

(17) Ex Article 17(4) of the Sixth VAT Directive.

(18) WHA Limited and others v HM Commissioners of Customs and Excise [2004] STC 1081, paragraphs 123 to 125.

(19) Now Article 258 of the Treaty on the Functioning of the European Union (OJ 2008 C 115, p. 47).

(20) Case C‑210/91 Commission v Greece [1992] ECR I‑6735, paragraph 10 and case‑law cited.

(21) Case 51/83 Commission v Italy [1984] ECR 2793, paragraph 4; see more recently: Case C‑274/07 Commission v Lithuania [2008] ECR I‑7117, paragraph 20.

(22) Recital 3 in the preamble to the VAT Directive.

(23) Annex XII of the VAT Directive, under the section on Article 28f, point (1) replacing Article 17(2), (3) and (4) of the Sixth VAT Directive.

(24) The last sentence of recital 3 in the preamble to the VAT Directive.

(25) Case C‑263/06 Carboni e derivati [2008] ECR I‑1077, paragraph 48; Case C‑48/07 Les Vergers du Vieux Tauves [2008] ECR I‑10627, paragraph 44.

(26) Opinion of Advocate General Mayras in Case 67/79 Fellinger [1980] ECR 535, at 550.

(27) Henkow, O., Financial Activities in European VAT, Kluwer Law International, 2008, p. 286.

(28) Pursuant to Article 135 of the VAT Directive (ex Article 13 of the Sixth VAT Directive).

(29) Case C‑4/94 BLP [1995] ECR I‑983, paragraph 28; see also Case C‑302/93 Debouche [1996] ECR I‑4495, paragraph 16.

(30) Article 9 of the VAT Directive.

(31) Article 2(2) of the Thirteenth VAT Directive.

(32) Article 2(3) of the Thirteenth VAT Directive.

(33) Terra, B. and Kajus, J., A guide to the European VAT directives, IBFD, 2004‑ , 11.6.4 ‘The Thirteenth VAT Directive’.

(34) Recital 2 in the preamble to the Thirteenth VAT Directive.

(35) Paragraphs 3 and 4 of the Explanatory Memorandum to the Proposal for a Thirteenth Council Directive on the harmonisation of the laws of the Member States relating to turnover taxes – Arrangements for the refund of value added tax to taxable persons not established in Community territory (‘Explanatory Memorandum to the proposal for a Thirteenth VAT Directive’), COM(82) 443.

(36) Paragraph 4 of the Explanatory Memorandum to the proposal for a Thirteenth VAT Directive, ibid.

(37) Paragraph 3 of the European Parliament Resolution embodying the opinion of the European Parliament on the proposal from the Commission of the European Communities to the Council for an Eighth Directive on the harmonisation of the laws of the Member States relating to turnover taxes – arrangements for the refund of value added tax to taxable persons not established in the territory of the country (‘European Parliament Resolution’) (OJ 1979 C 39, p. 14).

(38) European Parliament Resolution, ibid., paragraph 4.

(39) Case 270/80 Polydor and RSO [1982] ECR 329, paragraphs 14 to 18. See most recently Case C‑351/08 Grimme [2009] ECR I‑0000, paragraph 29.

(40) Case 218/82 Commission v Council [1983] ECR 4063, paragraph 15. See, more recently, Case C‑457/05 Schutzverband der Spirituosen‑Industrie [2007] ECR I—8075, paragraph 22.

(41) OJ 2008 L 44, p. 23.

(42) Case 157/86 Murphy and Others [1988] ECR 673, paragraph 10; Case 187/87 Land de Sarre and Others [1988] ECR 5013, paragraph 19. See more recently C‑174/05 Zuid‑Hollandse Milieufederatie and Natuur en Milieu [2006] ECR I‑2443, paragraph 20.

(43) It should be added that this is possible only as to acts of the same normative level. An EU implementing measure of a lower normative hierarchical rank or a national implementing or transposing measure may not change the scope or meaning of the provisions of the act to be implemented.

(44) Debouche, cited in footnote 29, paragraph 18; Case C‑35/05 Reemtsma Cigarettenfabriken [2007] ECR I‑2425, paragraph 25.

(45) Historically there was a need to manipulate the VAT system, primarily in the field of deductions, so that the imposition of substantially higher rates than were charged under the cumulative turnover tax system could be avoided. Such interferences with a ‘pure’ VAT system are still present today. For example, the ‘butoir’, or ‘buffer rule’ was introduced, which restricted the right to deduct the amount of VAT due in a tax period, with the remainder being carried over to the next period. This rule is still permitted under Article 183 of the VAT Directive (ex Article 18(4) of the Sixth VAT Directive). See Terra, B., ‘Developments in VAT – the deduction of input tax’, VAT monitor, Vol 7, no 2, March/April, 1996, p. 52.

(46) As Professor Kaarle Makkonen has put it: the legislator can be capricious. See Makkonen, K., Zur Problematik der juridischen Entscheidung, Eine strukturanalytische Studie, Annales Universitatis Turkuensis Ser. B Humaniora 93, Turku 1965, p. 203.

(47) Case 169/80 Gondrand and Garancini [1981] ECR 1931, paragraphs 16 and 17. See also the last point of Advocate General Slynn’s Opinion in that case, at p. 1949. See most recently Case C‑170/08 Nijemeisland [2009] ECR I‑0000, paragraph 44.

(48) Case C‑247/08 Gaz de France ‑ Berliner Investissement [2009] ECR I‑0000, paragraph 38. It is interesting to note that in that case even though the provision in question had been amended by the legislature in a subsequent directive, the Court rejected an interpretation based on the objectives and scheme of the legislation in favour of the express wording of the provision.