Court of Justice of the European Communities (including Court of First Instance Decisions)

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1. Budget of the European Communities - Budgetary procedure - Obligation to carry over the budgetary surplus - Extent
(Council Decision of 24 June 1988, Art. 7)
2. Budget of the European Communities - Principles - Annual nature and unity - Reflected in the obligation to carry over the budgetary surplus into the budget of the following financial year - Partial carry-over - Unlawful
(EEC Treaty, Arts 199 and 202; Council Decision of 24 June 1988, Art. 7; Financial Regulation, Art. 32)
3. Communities' own resources - VAT resources - Rate fixed by the decision on the Communities' own resources - Application for a given financial year of a lower rate adequate to cover the expenditure deemed necessary - Whether permissible
(Council Decision of 24 June 1988, Art. 2(4))
4. Application for annulment - Judgment annulling a measure - Effects - Limitation by the Court - Invalidity of an amending and supplementary budget of the European Communities
(EEC Treaty, Art. 174(2))

1. By providing in general terms that any surplus in the Communities' own resources over total expenditure during one financial year is to be carried over to the following financial year, without referring to a particular type of resource or to a specific amount of surplus, Article 7 of the decision on the Communities' own resources refers to the entire surplus declared, irrespective of its origin, and not only the portion of that surplus derived from the resources based on the gross national product of the Member States.
2. The rule in Article 7 of the decision on the Communities' own resources and in Article 32 of the Financial Regulation that the surplus in own resources over expenditure during one financial year may be carried over to the following financial year is merely the expression of two fundamental principles in budgetary matters, namely that of the annual nature of the budget and that of the unity of the budget. Those principles, laid down in Articles 199 and 202 of the Treaty, require that all the revenue available to the Community for a given financial year be entered in the budget for that financial year. It follows that the failure to enter a portion of the surplus balance for one financial year in the following financial year, inasmuch as it has the effect that the budget for the latter financial year does not reflect all the revenue available to the Community for that financial year, infringes the abovementioned principles. Because it carried over only a portion of the surplus, amending and supplementary budget No 2 for the financial year 1990 is unlawful and the act whereby the President of the Parliament declared that it had been finally adopted must be annulled.
3. The obligation to apply Article 2(4) of the decision on the European Communities' own resources, which provides that the VAT resource is to be fixed at 1.4% of the VAT assessment base for Member States, must be interpreted in the light of the purpose of that decision. It is thus permissible to fix a rate lower than 1.4% in an exceptional case where the compulsory application of the rule that the surplus in one financial year is to be carried over to the following year means that the revenue available to the Communities for the latter year bears no relation to the expenditure deemed necessary.
4. Important reasons of legal certainty and the need to guarantee the continuity of the European public service require that the annulment of the act whereby the President of the Parliament declared that an amending and supplementary budget had been finally adopted, coming after the financial year was closed, may not affect the validity of either payments or commitments or operations relating to the call-up and levy of own resources before the judgment annulling that act was delivered.

In Case C-284/90,
Council of the European Communities, represented by Arthur Alan Dashwood, Director of its Legal Service, and Yves Crétien, Adviser in its Legal Service, acting as Agents, with an address for service in Luxembourg at the office of Joerg Kaeser, Director of the Legal Affairs Department at the European Investment Bank, 100 Boulevard Konrad Adenauer,
applicant,
v
European Parliament, represented by Jorge Campinos, Jurisconsult, and Christian Pennera, a member of the Legal Service, acting as Agents, with an address for service in Luxembourg at the General Secretariat of the European Parliament, Kirchberg,
defendant,
supported by
Commission of the European Communities, represented by its Legal Advisers, Jean Amphoux and David Gilmour, acting as Agents, with an address for service in Luxembourg at the office of Roberto Hayder, a representative of its Legal Service, Wagner Centre, Kirchberg,
intervener,
APPLICATION for a declaration that the amending and supplementary budget No 2 for the financial year 1990 adopted by the European Parliament on 11 July 1990 and the act of the President of the European Parliament of 11 July 1990 whereby he declared that that amending and supplementary budget had been finally adopted (Official Journal 1990 L 239, p. 1) are void,
THE COURT,
composed of: O. Due, President, R. Joliet, F.A. Schockweiler, F. Grévisse and P.J.G. Kapteyn, Presidents of Chambers, G.F. Mancini, C.N. Kakouris, J.C. Moitinho de Almeida, G.C. Rodríguez Iglesias, M. Díez de Velasco and M. Zuleeg, Judges,
Advocate General: F.G. Jacobs,
Registrar: J.-G. Giraud,
having regard to the Report for the Hearing,
after hearing oral argument from the parties at the hearing on 19 September 1991,
after hearing the Opinion of the Advocate General at the sitting on 17 October 1991,
gives the following
Judgment

1 By an application lodged at the Court Registry on 17 September 1990, the Council of the European Communities brought an action pursuant to Article 173 of the EEC Treaty and Article 146 of the EAEC Treaty for the annulment of the amending and supplementary budget No 2 for the financial year 1990, adopted by the European Parliament on 11 July 1990, and of the act of the President of the European Parliament of 11 July 1990 whereby he declared that that amending and supplementary budget had been finally adopted (Official Journal 1990 L 239, p. 1).
2 The Council also asked the Court to declare that the annulment of either of those acts did not affect the validity of either payments or commitments or operations relating to the call-up and levy of own resources before the end of the financial year 1990.
3 On 20 March 1990 the Commission forwarded to the Council, in application of Article 15 of the Financial Regulation of 21 December 1977 applicable to the general budget of the European Communities (Official Journal 1977 L 356, p. 1), last amended by Council Regulation (Euratom, ECSC, EEC) No 610/90 of 13 March 1990 (Official Journal 1990 L 70, p. 1, hereinafter referred to as "the Financial Regulation"), the preliminary draft amending and supplementary budget No 2 for the financial year 1990 ("preliminary draft ASB No 2/90"). The purpose of the preliminary draft ASB was to enter in the budget for the financial year 1990 a portion of the net surplus balance in revenue from the financial year 1989; it also included an adaptation of the correction of budgetary imbalances for the United Kingdom and an adjustment of the rebates to Spain and Portugal.
4 In its draft amending and supplementary budget No 2 for the financial year 1990 ("draft ASB No 2/90"), established on 7 May 1990, the Council did not follow the preliminary draft ASB. In the first place, it entered the entire 1989 revenue surplus therein. It also decided not to call up the "fourth own resource", the revenue from the application of a rate to the sum of the gross national products (hereinafter referred to as "the GNP resources"), mentioned in Article 2(1)(d) of Council Decision 88/376/EEC, Euratom, of 24 June 1988 on the system of the Communities' own resources (Official Journal 1988 L 185, p. 24, hereinafter referred to as "the Own Resources Decision"). Finally, and contrary to the Commission' s proposal, the Council reduced the amount of own resources resulting from the application of the uniform rate to the VAT assessment base (hereinafter referred to as "the VAT resources") provided for in Article 2(1)(c) of that decision.
5 The Parliament amended draft ASB No 2/90 by, inter alia, amendment No 2 concerning the statement of revenue and seeking to re-establish the draft ASB in the form taken by the Commission' s preliminary draft ASB. The amendment thus concerned Article 130 (own resources accruing from VAT), Article 140 (own resources based on GNP) and Article 300 (surplus available from the preceding financial year) of draft ASB budget No 2/90. The Parliament called up the VAT resources at the rate of 1.4% provided for in Article 2(4) of the Own Resources Decision. It also called up the GNP own resources solely in relation to the financing of the correction in favour of the United Kingdom. Finally, it entered only a portion of the balance from the financial year 1989 in the 1990 budget.
6 At its meeting of 25 and 26 June 1990 the Council expressly rejected that amendment No 2 of the Parliament, at the same time explaining that that rejection did not imply that it could be regarded as an amendment, since amendments within the meaning of Article 203 of the Treaty concern only non-compulsory expenditure and not the statement of revenue. It therefore confirmed the statement of revenue contained in draft ASB No 2/90, as corrected by two letters of amendment.
7 On 11 July 1990 the Parliament discussed the Council' s modifications of the draft ASB and then finally adopted the ASB for the financial year 1990 ("ASB No 2/90") in the form employed in its amendment No 2.
8 The President of the Parliament declared on 11 July 1990 that ASB No 2/90 had been finally adopted and informed the Council thereof by letter of 12 July 1990.
9 Reference is made to the Report for the Hearing for a fuller account of the facts of the case, the course of the procedure and the submissions and arguments of the parties, which are mentioned or discussed hereinafter only in so far as is necessary for the reasoning of the Court.
Admissibility
10 The European Parliament considers that the application should be declared inadmissible in so far as it seeks the annulment of the ASB No 2/90 adopted by the Parliament on 11 July 1990 and asks the Court to declare that the validity of all the acts taken to implement the budget is not affected.
11 The Parliament claims that the final adoption of ASB No 2/90 does not constitute an act which may be the subject of an application for annulment. Referring to the operative part of the judgment in Case 34/86 Council v Parliament ([1986] ECR 2155), it considers that only the act of the President of the Parliament of 11 July 1990 declaring that that amending and supplementary budget had been finally adopted may form the subject of such an application and that, accordingly, the Council' s application for the annulment of that amending and supplementary budget must be declared inadmissible.
12 In that respect, it should be noted that the effect of the annulment of the act of the President of the Parliament of 11 July 1990 owing to the unlawfulness of ASB No 2/90 alleged by the Council would be to deprive that amending and supplementary budget of its validity (see the judgment in Council v Parliament, cited above, paragraph 46).
13 It is therefore not necessary to give a decision on the Council' s claim for the annulment of ASB No 2/90 and, consequently, on the objection of inadmissibility raised by the Parliament in that respect.
14 The Parliament' s observations regarding the claims in the application concerning the measures to be taken in the event of the annulment of the act of the President of the Parliament of 11 July 1990 will be taken into consideration following the examination of the substance of the case.
Substance
15 The Council relies on two submissions in support of its application. It claims that ASB No 2/90 is unlawful, first, in relation to Article 7 of the Own Resources Decision and Article 32 of the Financial Regulation and, secondly, with regard to the powers of the Parliament.
16 Concerning the first submission, the Council claims that Article 7 of the Own Resources Decision and Article 32 of the Financial Regulation (hereinafter referred to as "the carry-over rule") require the entire surplus for the financial year 1989 to be carried over to the financial year 1990. It considers that those provisions leave no choice with regard to the amount of the surplus to be carried over to the following financial year. It adds that, having regard to the principle that the budget is to balance, laid down in the second paragraph of Article 199 of the Treaty, and in so far as, without even calling up the GNP resource, the surplus for 1989, it carried forward, would lead to a surplus of revenue over the actual expenditure forecast for the financial year 1990, the uniform rate of the VAT resources ought to have been fixed at a level lower than that which would have resulted from the straightforward application of Article 2(4) of the Own Resources Decision, the solution adopted by the Parliament.
17 The Parliament counters that argument by contending, first, that it follows from the logic of the budgetary system, and especially from a comparative analysis of Articles 2 and 7 of the Own Resources Decision and the corresponding articles in the previous decisions of 21 April 1970 (Official Journal, English Special Edition 1970(I), p. 224) and of 7 May 1985 (Official Journal 1985 L 128, p. 15), that the surplus in revenue referred to in Article 7 of that decision can be the result only of the residual GNP resource and not of revenue which naturally forms part of the Communities' own resources, including, in particular, the VAT resources.
18 That argument of the Parliament cannot be upheld.
19 The wording of Article 7 of the Own Resources Decision makes no distinction between the various categories of the Communities' revenue. While it is true that, pursuant to Article 4(5) of the decision of 21 April 1970, the carry-over rule applies only with effect from the complete application of the second subparagraph of paragraph (1) of that article, relating to VAT resources, paragraph (5) refers generally to "any surplus of the Communities' own resources over and above the actual expenditure during a financial year", without referring to a particular type of resources or to a specific amount of the surplus. In any event, Article 7 of the Own Resources Decision, like the corresponding Article 6 of the decision of 7 May 1985, makes no mention at all of the VAT resources.
20 The Parliament then claims that, pursuant to Article 2(4)(a) of the Own Resources Decision, the VAT rate is to correspond to the rate resulting from "the application of 1.4% to the VAT assessment base for the Member States". The VAT rate thus being unalterably fixed, the VAT resources belong permanently to the Community and therefore cannot be the subject of any rebate.
21 The Commission considers that the surplus for the financial year 1989 was such that it proved impossible, when the budget for the financial year 1990 was established, to apply simultaneously the second paragraph of Article 199 of the Treaty, which provides that the budget is to balance, Article 2(4) of the Own Resources Decision, which fixes the VAT rate at 1.4%, and the rule laid down in Article 7 of that decision, which, as detailed in Article 32 of the Financial Regulation, provides that the balance is to be carried over to the budget of the following financial year. The Commission argues that the first two rules are fundamental and therefore cannot be defeated by the application of the rule laid down in Article 7, which is essentially technical in nature.
22 Those arguments, also, cannot be upheld.
23 It should first of all be noted that the problem posed by the simultaneous application of the budgetary provisions mentioned in paragraph 21 must find a solution which is consistent with the principles underlying the Community budgetary system.
24 With regard to the second paragraph of Article 199 of the Treaty, it should be pointed out that none of the parties to the action disputes the obligation to apply to the 1990 budget the principle that the budget is to balance.
25 As for the obligation to apply the rule that the surplus is to be carried over, it should be observed that it follows from the words of Article 7 of the Own Resources Decision and of Article 32 of the Financial Regulation that the surplus of one financial year may be carried over only to the following financial year.
26 That rule constitutes an expression of two fundamental principles in budgetary matters, these being the annual nature of the budget and the unity of the budget. Those principles, laid down in the first paragraph of Articles 199 and 202 of the Treaty, require that all the revenue available to the Community for a given financial year be entered in the budget of that financial year.
27 It follows that the failure to enter a portion of the surplus balance of one financial year in the following financial year, the solution adopted by the Parliament and supported by the Commission, has the consequence that the budget for the latter financial year does not reflect all the revenue available to the Community for that financial year and, accordingly, infringes the abovementioned principles.
28 With regard to the obligation to apply Article 2(4) of the Own Resources Decision, which provides that the rate of VAT is to be fixed at 1.4%, that provision must be interpreted in keeping with the purpose of that decision.
29 In that respect, it should first of all be pointed out that the Own Resources Decision and its predecessors are, as the Advocate General has explained in paragraphs 31 to 34 of his Opinion, all three founded upon the premise that existing revenue is inadequate. It was in order to deal with that problem that, after stating in the second and tenth recitals of its preamble that the limit of 1.4% of the VAT rate had proved insufficient to ensure that the estimates of Community expenditure were covered, the Own Resources Decision established a new type of resource, resulting from the application of a uniform rate to the GNP, the amount of which may vary according to the need to balance revenue and expenditure in accordance with the second paragraph of Article 199 of the Treaty.
30 It should next be remembered that according to the fourth recital of the preamble to the Own Resources Decision "the Community must possess stable and guaranteed revenue enabling it to stabilize the present situation and operate the common policies" and that "this revenue must be based on the expenditure deemed necessary to this end ...".
31 It is thus necessary to consider that where, as in this case, there is a surplus in revenue which, when carried over to the financial year 1990, bears no relation to the expenditure deemed necessary for that financial year but results from the mandatory application of the carry-over rule, the purpose of the Own Resources Decision, in such an exceptional case and given the need to comply with the principle that the budget is to balance, does not prevent the VAT rate from being fixed at a level lower than the level of 1.4% laid down in Article 2(4) and, consequently, does not prevent the VAT resources from being called up only in so far as that should prove necessary to cover the estimated expenditure for that financial year.
32 It follows from all the foregoing considerations that the Council was right to claim that ASB No 2/90 is unlawful in relation to Article 7 of the Own Resources Decision and Article 32 of the Financial Regulation owing to the fact that it carries over to the revenue of the 1990 budget only a portion of the surplus from the preceding financial year.
33 Consequently, without its being necessary to give a decision on the other plea relied on by the Council, it is necessary, in view of the irregularity of ASB No 2/90 of the Parliament, to annul the act whereby the President of the Council declared that that amending and supplementary budget was finally adopted and to declare that the effect of that annulment is to deprive ASB No 2/90 of its validity.
The effects of the annulment
34 In its application, the Council asks the Court to state that the annulment of the act of the President of the Parliament does not affect the validity of either payments or commitments or operations relating to the call-up and levy of own resources before the end of the financial year 1990.
35 The Parliament considers that the Council can have no interest in seeking at the same time the annulment of that act and the full preservation of its effect, so that one or other of its requests must be deemed inadmissible.
36 That argument must be rejected. It is sufficient to state, in that respect, that it is incumbent on the Court to give a decision on the consequences of an annulment without being bound by the proposals formulated to that end by the parties and that, in any event, the Council has an interest in obtaining a declaration of illegality even where the effects of the act annulled remain unaffected.
37 Since the annulment of the act of the President of the Parliament comes after the closure of the budget, the Court considers that important reasons of legal certainty and the need to guarantee the continuity of the European public service require that the annulment of that act should not be able to affect the validity of either payments or commitments or operations relating to the call-up and levy of own resources before the present judgment was delivered.

Costs
38 Under Article 69(2) of the Rules of Procedure, the unsuccessful party is to be ordered to pay the costs if they have been asked for in the successful party' s pleading. The Council did not ask for costs. Each party must therefore be ordered to pay its own costs. In accordance with Article 69(4) of the Rules of Procedure, the intervener must bear its own costs.

On those grounds,
THE COURT
hereby:
1. Annuls the act of the President of the European Parliament of 11 July 1990 whereby he declared that amending and supplementary budget No 2 of the European Communities for the financial year 1990 had been finally adopted;
2. Declares that the annulment of the act of the President of the European Parliament of 11 July 1990 does not affect the validity of either the payments made and commitments undertaken or the transactions relating to the call-up and levy of own resources, before this judgment was delivered, in implementation of amending and supplementary budget No 2, as published in the Official Journal of the European Communities;
3. Orders the parties, including the intervener, to pay their own costs.