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Court of Justice of the European Communities (including Court of First Instance Decisions)
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Commission v Italy (Taxation) [1997] EUECJ C-45/95 (25 June 1997)
URL: http://www.bailii.org/eu/cases/EUECJ/1997/C4595.html
Cite as:
[1997] CEC 1009,
[1997] BVC 536,
[1997] BTC 5422,
[1997] STC 1062,
[1997] EUECJ C-45/95,
[1997] ECR I-3605
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IMPORTANT LEGAL NOTICE - The source of this judgment is the web site of the Court of Justice of the European Communities. The information in this database has been provided free of charge and is subject to a Court of Justice of the European Communities disclaimer and a copyright notice. This electronic version is not authentic and is subject to amendment.
JUDGMENT OF THE COURT (Sixth Chamber)
25 June 1997 (1)
(VAT - Exemption within the country - Supplies of goods which were used
wholly for an exempted activity or which were excluded from the right of
deduction)
In Case C-45/95,
Commission of the European Communities, represented by Enrico Traversa, of its
Legal Service, acting as Agent, with an address for service in Luxembourg at the
office of Carlos Gómez de la Cruz, of the same Service, Wagner Centre, Kirchberg,
applicant,
v
Italian Republic, represented by Umberto Leanza, Head of the Department for
Legal Affairs in the Ministry for Foreign Affairs, acting as Agent, assisted by
Maurizio Fiorilli, Avvocato dello Stato, with an address for service in Luxembourg
at the Italian Embassy, 5 Rue Marie-Adélaďde,
defendant,
APPLICATION for a declaration that, by enacting and maintaining in force
legislation which does not exempt from value added tax supplies of goods used
wholly for an exempted activity or in any event excluded from the right of
deduction, the Italian Republic has failed to fulfil its obligations under
Article 13B(c) of the Sixth Council Directive (77/388/EEC) of 17 May 1977 on the
harmonization 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 COURT (Sixth Chamber),
composed of: G.F. Mancini, President of the Chamber, P.J.G. Kapteyn, G. Hirsch
(Rapporteur), H. Ragnemalm and R. Schintgen, Judges,
Advocate General: D. Ruiz-Jarabo Colomer,
Registrar: L. Hewlett, Administrator,
having regard to the Report for the Hearing,
after hearing oral argument from the parties at the hearing on 14 November 1996,
after hearing the Opinion of the Advocate General at the sitting on
10 December 1996,
gives the following
Judgment
- By application lodged at the Court Registry on 24 February 1995, the Commission
of the European Communities brought an action under Article 169 of the EC
Treaty for a declaration that, by enacting and maintaining in force legislation which
does not exempt from value added tax ('VAT') supplies of goods used wholly for
an exempted activity or in any event excluded from the right of deduction, the
Italian Republic has failed to fulfil its obligations under Article 13B(c) of the Sixth
Council Directive (77/388/EEC) of 17 May 1977 on the harmonization 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').
Community law
- Article 13B(c) of the Sixth Directive provides:
'B. Other exemptions
Without prejudice to other Community provisions, Member States shall exempt the
following under conditions which they shall lay down for the purpose of ensuring
the correct and straightforward application of the exemptions and of preventing any
possible evasion, avoidance or abuse:
...
(c) supplies of goods used wholly for an activity exempted under this Article ...
when these goods have not given rise to the right to deduction, or of goods
on the acquisition or production of which, by virtue of Article 17(6), value
added tax did not become deductible;
...'
- Article 17(6) states:
'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'.
The Community rules referred to in that provision have not yet been adopted.
Italian law
- In Italian law, Article 2 of Decree No 633 of the President of the Republic of
26 October 1972 imposing value added tax ('the Presidential Decree') provides:
'(Supplies of goods)
Transactions for value involving the transfer of property or the creation or transfer
of a right in rem to use and enjoy assets, of whatever kind, constitute supplies of
goods.
The following also constitute supplies of goods: ...
The following are deemed not to be supplies of goods: ...
(h) supplies of goods obtained or imported by the supplier without a right of
deduction under the second paragraph of Article 19.'
- The first paragraph of Article 19 of the Presidential Decree governs the right of
taxable persons to deduct from the amount of tax payable on their transactions the
input tax paid on 'goods and services imported or obtained in the course of
carrying on a business or being engaged in a trade or profession'. Under the
second paragraph of that article, VAT paid on the purchase of certain types of
goods, such as cars, other self-propelled vehicles and pleasure craft, is not
deductible.
- Article 10 of the Presidential Decree, which contains a detailed and exhaustive list
of 'exempt transactions', does not lay down any exemption for the supply of goods
which have been used by a taxable person wholly for an exempted activity and in
respect of which a right to deduct input tax did not therefore arise.
Procedure
- By letter of 19 November 1992, the Commission informed the Italian Republic that,
in its view, Article 13B(c) of the Sixth Directive had not been correctly
implemented by Articles 2, 10 and 19 of the Presidential Decree and accordingly
gave it formal notice to submit its observations within a period of two months.
- In a letter of 31 March 1993, the Italian Government acknowledged that
Article 13B(c) of the Sixth Directive had been only partially transposed into
national law.
- Despite the reasoned opinion sent to it on 19 July 1994 Italy maintained those
provisions in force. The Commission therefore brought this action.
- In its application, the Commission raises two objections alleging incorrect
transposition of Article 13B(c) of the Sixth Directive in so far as it (i) requires the
Member States to exempt 'supplies of goods used wholly for an activity exempted
under [that] article ... when these goods have not given rise to the right to
deduction' and (ii) requires exemption of 'supplies ... of goods on the acquisition
or production of which, by virtue of Article 17(6), value added tax did not become
deductible'.
- In its defence, the Italian Government disputes that the provision has not been
correctly transposed into Italian law.
Incorrect transposition of the first part of Article 13B(c) of the Sixth Directive
- The first part of Article 13B(c) requires the Member States to exempt supplies of
goods used wholly for an activity exempted under Article 13 where those goods
have not given rise to a right of deduction such as that provided for in
Article 17(3)(c).
- It is common ground that, as the Commission maintains, the Italian Republic has
not exempted such supplies of goods and that they are not among the 30 or so
categories of exempt transaction listed in Article 10 of the Presidential Decree.
- The Italian Government contends, however, that a taxable person who buys goods
used wholly for an exempt activity normally acquires them for his own use, so that
the subsequent supply of those goods is hypothetical. In addition, since the goods
would be second-hand, the amount of double taxation would be small in any event.
- That argument cannot be accepted. Even if the amount of VAT due in the event
of double taxation would in fact be insignificant, which the Commission disputes,
that cannot absolve Italy from properly implementing Article 13B(c) of the Sixth
Directive whose very purpose is to avoid double taxation contrary to the principle
of fiscal neutrality inherent in the common system of value added tax.
Incorrect transposition of the final part of Article 13B(c) of the Sixth Directive
- The final part of Article 13B(c) requires the Member States to exempt the supply
of goods in respect of which, by virtue of Article 17(6), VAT did not become
deductible when they were previously acquired or produced by the taxable person.
- Italy does not deny that subparagraph (h) of the third paragraph of Article 2 of the
Presidential Decree excludes from the scope of VAT, rather than exempts, the
supply of certain goods which are not strictly business goods and whose acquisition
did not give rise to a right of deduction in accordance with the second paragraph
of Article 19 of the Presidential Decree, that provision of Italian law corresponding
to Article 17(6) of the Sixth Directive.
- However, it submits in essence that Article 13 of the Sixth Directive does not oblige
the Member States to transpose the exemption therein literally, provided that its
substance is respected. Subparagraph (h) of the third paragraph of Article 2 of the
Presidential Decree, which excludes from the scope of VAT, rather than exempts,
certain supplies of goods which are not strictly business goods, does not conflict
with the objective set out in Article 17(6) of the Sixth Directive, the provision to
which Article 13B(c) refers.
- In regard to that argument, it must be pointed out that, while Article 13B(c) of the
Sixth Directive enables the Member States to determine the conditions for the
purpose of ensuring the correct and straightforward application of the exemptions
laid down therein, it does not allow them to treat a transaction which is to be
exempted as one which falls outside the scope of VAT. Such a transposition is in
any event contrary to the correct and straightforward application of exemptions
required by Article 13B(c) if it does not have the same effects as an exemption.
- That is the case here. As the Advocate General has explained in paragraph 42 et
seq. of his Opinion, the calculation of the deductible proportion provided for by
Article 19 of the Sixth Directive and the third paragraph of Article 19 of the
Presidential Decree and, therefore, the amount of VAT which a taxable person
may deduct, differ according to whether the supplies of goods in issue are rightly
exempted or, as subparagraph (h) of the third paragraph of Article 2 of the
Presidential Decree provides, fall outside the sphere of application of VAT.
- It must therefore be held that, by enacting and maintaining in force legislation
which does not exempt from value added tax supplies of goods used wholly for an
exempted activity or otherwise excluded from the right of deduction, the Italian
Republic has failed to fulfil its obligations under Article 13B(c) of the Sixth
Directive.
Costs
22. Under Article 69(2) of the Rules of Procedure, the unsuccessful party is to be
ordered to pay the costs if they have been applied for in the successful party's
pleadings. Since the Commission has not asked for the Italian Republic to be
ordered to pay the costs, each party must bear its own costs.
On those grounds,
THE COURT (Sixth Chamber)
hereby:
1. Declares that, by enacting and maintaining in force legislation which does
not exempt from value added tax supplies of goods used wholly for an
exempted activity or otherwise excluded from the right of deduction, the
Italian Republic has failed to fulfil its obligations under Article 13B(c) of
the Sixth Council Directive (77/388/EEC) of 17 May 1977 on the
harmonization of the laws of the Member States relating to turnover
taxes - Common system of value added tax: uniform basis of assessment;
2. Orders the parties to bear their own costs.
Mancini Kapteyn Hirsch
Ragnemalm Schintgen
|
Delivered in open court in Luxembourg on 25 June 1997.
R. Grass
G.F. Mancini
Registrar
President of the Sixth Chamber
1: Language of the case: Italian.