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You are here: BAILII >> Databases >> Court of Justice of the European Communities (including Court of First Instance Decisions) >> Hutchison 3G and Others (Taxation) [2006] EUECJ C-369/04 (07 September 2006)
URL: http://www.bailii.org/eu/cases/EUECJ/2006/C36904.html
Cite as: [2006] EUECJ C-369/04, [2006] EUECJ C-369/4
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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.
OPINION OF ADVOCATE GENERAL
KOKOTT
delivered on 7 September 2006 1(1)
Case C-369/04
Hutchison 3G UK Ltd and Others
v
Commissioners of Customs & Excise
(Reference for a preliminary ruling from the VAT and Duties TribunaI London (United Kingdom))
(Sixth VAT Directive - Definition of economic activity - Bodies governed by public law as taxable persons - Auction of licences to use frequencies for third-generation telecommunications services [UMTS/IMT-2000])
I - Introduction
1. In March/April 2000 the United Kingdom conducted an auction of five licence packages for the use of certain frequency bands to provide mobile communications under the UMTS/IMT-2000 (2) standard (also called third-generation mobile communications - 3 G); it was the first Member State to do so. 3G mobile devices have greater capacity to transfer data than mobile phones of previous generations. They enable the provision, in particular, of multimedia services such as video-conferencing, internet access and on-line entertainment. The introduction of UMTS mobile communications is considered an important technical advance opening up many new fields of activity to telecommunications organisations.
2. The organisations were therefore prepared to pay high licence fees. The Radiocommunications Agency ("RA") received revenue from the auctioning of the licences totalling approximately GBP 22.5 billion (equivalent at that time to approximately EUR 38.4 billion). The RA is an authorised agency of the Department of Trade and Industry and conducted the auction on behalf of the Secretary of State for Trade and Industry ("the Secretary of State").
3. Five telecommunications organisations, which are the appellants in the main proceedings, each successfully bid for one licensing package. They are of the opinion that the award of the licences was a transaction subject to value added tax and that the licence fees therefore included VAT. They are now claiming a refund of the allegedly paid (3) value added tax in the sum of GBP 3 347 698 000 (corresponding to approximately EUR 5 billion), as they would be entitled to reclaim that amount as input tax. The United Kingdom tax authorities consider, however, that the auctioning of the licences was not a taxable activity within the meaning of the Sixth VAT Directive (4) (hereinafter: the "Sixth Directive").
4. According to Article 4(1) and (2) of the Sixth Directive only transactions that a taxable person carries out in the course of his economic activity are subject to tax. According to Article 4(5) of the Directive the State and its bodies are not, in principle, to be considered taxable persons where they exercise public authority. It is the interpretation of these provisions in the context of the auctioning of the UMTS licences that forms the cornerstone of these proceedings.
5. In a reference for a preliminary ruling made in parallel with this case and on which I am also delivering my Opinion today, (5) the Landesgericht für Zivilrechtssachen Wien (Regional Civil Court, Vienna) has asked similar questions on how to assess the auctioning of UMTS licences in Austria.
6. Other Member States also followed the British example and received high licence fees as well, although - per head of potential mobile communications customers - not quite as high as in the United Kingdom. (6) The present proceedings and the parallel proceedings in Austria are therefore of particular significance not only because of the enormous sums at stake but also because they will serve as an example for similar cases in other Member States.
II - Legal framework
A - VAT legislation
1. Community law
7. Under Article 2(1) of the Sixth Directive the following are subject to value added tax:
"the supply of goods or services effected for consideration within the territory of the country by a taxable person acting as such; ...".
8. Article 4 of the Sixth Directive defines who is to be considered a "taxable person" as follows:
"1. "Taxable person" shall mean any person who independently carries out in any place any economic activity specified in paragraph 2, whatever the purpose or results of that activity.
2. The economic activities referred to in paragraph 1 shall comprise all activities of producers, traders and persons supplying services including mining and agricultural activities and activities of the professions. The exploitation of tangible or intangible property for the purpose of obtaining income therefrom on a continuing basis shall also be considered an economic activity.
...
5. States, regional and local government authorities and other bodies governed by public law shall not be considered taxable persons in respect of the activities or transactions in which they engage as public authorities, even where they collect dues, fees, contributions or payments in connection with these activities or transactions.
However, when they engage in such activities or transactions, they shall be considered taxable persons in respect of these activities or transactions where treatment as non-taxable persons would lead to significant distortions of competition.
In any case, these bodies shall be considered taxable persons in relation to the activities listed in Annex D, provided they are not carried out on such a small scale as to be negligible.
..."
9. In Annex D "Telecommunications" are shown as item 1 on the list of activities referred to in the third subparagraph of Article 4(5) of the Sixth Directive.
2. National legislation
10. Section 4(1) of the Value Added Tax Act 1994 (hereinafter: "the VAT Act 1994") provides:
"VAT shall be charged on any supply of goods or services made in the United Kingdom, where it is a taxable supply made by a taxable person in the course or furtherance of any business carried on by him."
11. Section 41(1) of the VAT Act 1994 provides:
"This Act shall apply in relation to taxable supplies by the Crown as it applies in relation to taxable supplies by taxable persons."
12. Section 41(2) of the VAT Act 1994 provides:
"Where the supply by a Government department of any goods or services does not amount to the carrying on of a business but it appears to the Treasury that similar goods or services are or might be supplied by taxable persons in the course or furtherance of any business, then, if and to the extent that the Treasury so direct, the supply of those goods or services by that department shall be treated for the purposes of this Act as a supply in the course or furtherance of any business carried on by it."
13. On 14 April 2000 the United Kingdom Treasury issued Treasury (Taxing) Directions ("Treasury Directions") in which it was provided that: "A supply by a Government department which is mentioned in List 1 of any goods or services of a description in List 2 shall be treated for the purposes of the Act [the VAT Act 1994] as a supply in the course or furtherance of a business carried out by that department." List 1 referred to the Department of Trade and Industry. List 2 referred inter alia both to "Licensing, certification, authorisation or the granting of any rights other than rights over land" and also to "telecommunications".
B - Legal background to the award of UMTS licences
14. Radio frequencies are scarce resources. A large part of the radio spectrum technically available for use has already been allocated to specific services and types of use. To avoid interference, separate sections (frequency bands) are made available for each particular kind of use. The international categorisation of frequencies is based on work undertaken by the International Telecommunications Union ("ITU"), an international organisation operating under the auspices of the United Nations.
15. The frequency bands opened up to the UMTS/IMT-2000 mobile system were determined in principle in 1992 by the World Radio Conference ("WRC 92") organised by the ITU. In Resolution 212 the World Administrative Radio Conference of 1997 assumes that IMT-2000 mobile communications systems will be introduced by about the year 2000.
16. The European Conference of Postal and Telecommunications Administrations ("CEPT") (7) carried out further preliminary work at European level on the introduction of third generation mobile communications. The European Radiocommunications Committee ("ERC"), which forms part of that organisation, defined the frequency spectrum available in its Decision ERC/DEC(97)/07 of 30 June 1997. (8)
17. The part of the frequency spectrum reserved for third-generation mobile communications can be subdivided into other sections in which several suppliers can operate mobile systems in parallel. The form and number of licences issued for this purpose varies from one Member State to another. (9) Whilst Austria and Germany divided the spectrum amongst six suppliers, for example, in Belgium and France there were only three. Hence, there is a certain amount of latitude - subject to minimum technical requirements - when determining the ranges licensed for the operation of a network.
1. Community law
18. Directive 97/13/EC (10) formed the Community law framework for the grant of general authorisations and individual licences in the field of telecommunications services during the period that is relevant to this case.
19. Under Article 3(3) of Directive 97/13 "Member States may issue an individual licence only where the beneficiary is given access to scarce physical and other resources or is subject to particular obligations or enjoys particular rights, in accordance with the provisions of Section III."
20. Section III of the Directive (Articles 7 to 11) deals with individual licences. Article 10 provides that the Member States may limit the number of individual licences to the extent required to ensure the efficient use of radio frequencies. They must, in particular, give due weight to the need to maximise benefits for users and to facilitate the development of competition. Member States are to grant such individual licences on the basis of selection criteria which must be objective, non-discriminatory, detailed, transparent and proportionate.
21. Under Article 11(1) of Directive 97/13 fees may be imposed which seek to cover the costs incurred in the issue of licences. Paragraph 2 also permits the imposition of other charges:
"Notwithstanding paragraph 1, Member States may, where scarce resources are to be used, allow their national regulatory authorities to impose charges which reflect the need to ensure the optimal use of these resources. Those charges shall be non-discriminatory and take into particular account the need to foster the development of innovative services and competition."
22. Directive 97/13 was repealed by Directive 2002/21/EC of the European Parliament and of the Council of 7 March 2002 on a common regulatory framework for electronic communications networks and services (Framework Directive). (11) In contrast to Directive 97/13 it is now provided in Article 9(3) of Directive 2002/21 that Member States may make provision for undertakings to transfer rights to use radio frequencies to other undertakings.
23. Article 9(4) of Directive 2002/21 provides as follows in this context:
"Member States shall ensure that an undertaking's intention to transfer rights to use radio frequencies is notified to the national regulatory authority responsible for spectrum assignment and that any transfer takes place in accordance with procedures laid down by the national regulatory authority and is made public. National regulatory authorities shall ensure that competition is not distorted as a result of any such transaction. Where radio frequency use has been harmonised through the application of Decision No 676/2002/EC (Radio Spectrum Decision) or other Community measures, any such transfer shall not result in change of use of that radio frequency."
24. Decision No 128/1999/EC of the European Parliament and of the Council of 14 December 1998 on the coordinated introduction of a third-generation mobile and wireless communications system (EMTS) in the Community (12) (the "UMTS Decision") also has a bearing on this case. By that Decision the Parliament and Council virtually gave the starting signal for a European-wide introduction of UMTS mobile communications.
25. The recitals in the preamble to the UMTS Decision refer to international developments and guidelines for the third-generation mobile system. Article 3(1) of the UMTS Decision requires the Member States to establish an authorisation system for the introduction of UMTS services by 1 January 2000. Under Article 3(3) they are to "ensure, in compliance with Community legislation, that the provision of UMTS is organised ... in frequency bands which are harmonised by CEPT ...".
2. National legislation
26. Under section 1 of the Wireless Telegraphy Act of 1949 ("the WTA 1949") "No person shall establish or use any station for wireless telegraphy or install or use any apparatus for wireless telegraphy except under the authority of a licence in that behalf granted under this section - (a) by the Secretary of State". The WTA 1949 provides for penalties to be imposed under the criminal law for offences ancillary to that prohibition.
27. In 1997 the Department for Trade and Industry (the "DTI") and the RA undertook extensive preliminary work with regard to the auctioning of UMTS licences. The relevant groups were consulted and external advisers brought in. The work culminated in the establishment of legal principles governing the award of UMTS licences.
28. The Wireless Telegraphy Act 1998 (hereinafter: "the WTA 1998") laid down the guidelines for the award of licences and, in particular, permitted the receipt of sums that exceeded the administrative charges required to cover costs. The following matters were to be taken into account when prescribing such sums:
- the efficient use and management of the electro-magnetic spectrum,
- any economic benefits arising from the use of wireless telegraphy,
- the development of innovative services, and
- competition in the provision of telecommunication services.
29. Further details on the award of UMTS licences were set out in the Wireless Telegraphy (Third Generation Licences) Regulations 1999 ("the WTA Regulations"), which were brought in under the WTA 1998. The spectrum covered by the five licences to be awarded was set out in the Schedule to the WTA Regulations. Licences A and B were each to comprise 2 x 15 MHz of paired spectrum, (13) whilst Licences C, D and E were each to comprise 2 x 10 MHz of paired spectrum. Licence A was reserved for a mobile communications supplier that was a new entrant to the British market.
30. The detailed rules for participation in the auction and the operation of the auction were published in a Notice dated 22 December 1999. To qualify to participate in the auction it was necessary inter alia to pay a deposit in the initial sum of GBP 50 million. Minimum bids of between GBP 89.3 and 125 million, according to the scope of the licences, were also stipulated.
31. Spectrum trading, which the Member States can open up under Article 9(3) of Directive 2002/21, has not yet been introduced in the United Kingdom.
III - Facts and questions referred to the Court for a preliminary ruling
32. The participants in the auction process, which lasted from 6 March to 27 April 2000, were four undertakings already established in the United Kingdom and nine potential new entrants to the market. The following bidders won a licence:
Licence |
Winner |
Final bid in GBP |
Licence A (reserved for a newew entrant) |
TIW UMTS (UK) Limited (now Hutchison 3G UK Limited) (a new entrant) |
4 384 700 000 |
Licence B |
Vodafone Limited (an incumbent operator) |
5 964 000 000 |
Licence C |
BT3G Limited (14) (an incumbent operator) |
4 030 100 000 |
Licence D |
One2One Personal Communications Limited (now T-Mobile (UK) Limited) (an incumbent operator) |
4 003 600 000 |
Licence E |
Orange 3G Limited (an incumbent operator) |
4 095 000 000 |
Total |
22 477 400 000 |
33. The licences were issued in May and September 2000 for a term expiring on 31 December 2021. The winning bidders paid the licence fees in full in 2000. The total cost to the administration of developing and managing the auction was GBP 8 million (approximately EUR 13.7 million).
34. The licensees are obliged inter alia to provide, by 31 December 2007, and to maintain thereafter, a telecommunications service to an area where at least 80% of the population of the United Kingdom live. They also need a licence under section 7 of the Telecommunications Act 1984, which gives them a general entitlement to provide mobile telecommunications services.
35. The appellants consider that value added tax was included in the licence fees. They therefore claimed repayment of the value added tax as input tax in relation to their own taxable transactions. The Commissioners of Customs & Excise refused to make repayment. They contended that the award of the licences was not subject to VAT. The appellants were unsuccessful in their judicial proceedings at first instance and are now pursuing their claims in the VAT and Duties Tribunal, which made an order of 24 August 2004 referring the following questions to the Court of Justice for a preliminary ruling under Article 234 EC:
1. In the circumstances set out in the Agreed Statement of Facts, is the term "economic activity" for the purposes of Article 4(1) and (2) of the Sixth Directive to be interpreted as including the issuing of the Licences by the Secretary of State by way of an auction of rights to use telecommunications equipment in defined parts of the electro-magnetic spectrum ("the Activity"), and what considerations are relevant to that question?
2. In the circumstances set out in the Agreed Statement of Facts, what considerations are relevant to the question whether or not the Secretary of State, in conducting the Activity, was acting as a "public authority" within the meaning of Article 4(5) of the Sixth Directive?
3. In the circumstances set out in the Agreed Statement of Facts, can the Activity be (i) in part an economic activity and in part not, and/or (ii) partly carried out by a body governed by public law acting as a public authority and partly not, with the result that the Activity would be partly chargeable to VAT under the Sixth Directive and partly not?
4. How likely and how close in time to the carrying out of an activity such as the Activity does a "significant distortion of competition" within the meaning of the second subparagraph of Article 4(5) of the Sixth Directive have to be in order for the person carrying out that activity to be required by that subparagraph to be considered a taxable person in respect of that activity? To what extent, if any, does the principle of fiscal neutrality bear on that question?
5. Does the word "telecommunications" in Annex D to the Sixth Directive (which is referred to in the third subparagraph of Article 4(5) of the Sixth Directive) include the issuing of the Licences by the Secretary of State by way of an auction of rights to use the telecommunications equipment in defined parts of the electro-magnetic spectrum, in the circumstances set out in the Agreed Statement of Facts?
6. Where (i) a Member State chooses to implement Article 4(1) and (5) of the Sixth Directive by legislation conferring on a Government department (such as, in this case, the UK Treasury) a statutory power to make directions specifying which goods or services supplied by Government departments are to be treated as taxable supplies and (ii) that Government department makes, or purports to make, pursuant to that statutory power, directions specifying that certain supplies are taxable: is the principle set out in Case C-106/89 Marleasing [1990] ECR I-4135, paragraph 8, relevant to the interpretation of the domestic legislation and of those Directions (and, if so, how)?
IV - Legal appraisal
A - The first question: existence of an economic activity
36. By its first question, the national court asks whether the auctioning of licences affording the right to operate telecommunications equipment in defined parts of the electro-magnetic spectrum constitutes an economic activity for the purposes of Article 4(1) and (2) of the Sixth Directive.
37. Under Article 4(1) of the Sixth Directive "taxable person" means any person who independently carries out any economic activity, whatever the purpose or results of that activity. The provision does not therefore just state who can be a taxable person but also provides for the circumstances in which a person's activity is subject to value added tax.
38. Article 4(2) of the Sixth Directive contains a very wide-ranging enumeration of activities that are to be considered economic activities for the purposes of Article 4(1). In addition to all activities of producers, traders and persons supplying services, they comprise, in particular, the exploitation of tangible or intangible property for the purpose of obtaining income therefrom on a continuing basis.
39. The Court of Justice has concluded from this definition "that the scope of the term economic activities is very wide, and that the term is objective in character, in the sense that the activity is considered per se and without regard to its purpose or results". (15)
40. The subjective intentions with which the person concerned pursues the activity are therefore not relevant. Were it otherwise, the tax authorities would have to pursue investigations to establish those intentions, which would be contrary to the objectives of the common system of value added tax. The aim of that system is to ensure legal certainty and facilitate the application of VAT by having regard, save in exceptional cases, to the objective character of the transaction in question. (16)
41. I will first consider the objection that the existence of an economic activity is already precluded by the fact that the UMTS licences were auctioned in the interests of market regulation. I will go on to examine whether the procedure is to be classed as exploitation of intangible property for the purpose of obtaining income therefrom on a continuing basis, within the meaning of Article 4(2) of the Sixth Directive.
1. Does the objective of regulating the market preclude an economic activity?
42. The background to the auctioning of the licences is the fact that radio frequencies are scarce resources. The section of the electro-magnetic spectrum that is available to UMTS services is laid down by international agreements. Within that section only a limited number of mobile communications networks can be operated in parallel. Regulatory intervention by the State is unavoidable in order to ensure orderly use of frequencies without interference.
43. The UMTS Decision obliges the Member States to carry out the necessary administrative procedure for the introduction of UMTS services.
44. Directive 97/13 and the corresponding national legislation transposing it form the particular legal framework which is binding on the Member States when allocating frequency bands. Under Article 10 of Directive 97/13 they are obliged to grant individual licences on the basis of selection criteria which are objective, non-discriminatory, detailed, transparent and proportionate. Under Article 11(2) of Directive 97/13 they may impose charges in this connection which reflect the need to ensure the optimal use of these resources.
45. The United Kingdom decided to auction licences affording the right to use certain radio frequencies. The auction proceeds received from this were treated as charges for the purposes of Article 11(2) of Directive 97/13. According to the United Kingdom, the auction process was intended to ascertain the undertakings that attributed the greatest commercial value to the licences and that therefore offered a guarantee that the greatest possible use would be made of the licences. The point was not to obtain a great deal of revenue for the State.
46. The Member States that are parties to these proceedings and the Commission conclude from these facts that the award of the UMTS licences by the Secretary of State, or the RA, was not an economic activity within the meaning of Article 4(1) and (2) of the Sixth Directive but a measure to regulate the market.
47. This argument cannot be accepted.
48. The question of whether an activity constitutes an economic activity for the purposes of the law on value added tax depends upon its objective character, which is to be determined by reference to actual external events. The aim pursued by the activity, which was to regulate access to the UMTS market in conformity with Community law requirements and to ascertain the most suitable mobile communications suppliers, is of no relevance as, under the case-law cited, no account is to be taken of such objectives when categorising an activity. (17)
49. The subject-matter of the auction was the right to use defined radio frequencies for the operation of a mobile communications network for a period of 20 years. That right was awarded under the auction to those undertakings that made the highest bids.
50. The question of how the award of licences by the State is to be classified in law - as an administrative authorisation or as a transaction under the civil law - is of just as little account when determining the objective nature of an activity as the title given to the undertaking's corresponding counter-consideration - a levy or a purchase price. (18) The licence was, in any event, only awarded in consideration of payment of the sum of money determined by the auction so that the payment of money was directly connected to the award of the licence. Nor does the payment constitute a fee by which the administrative costs alone are covered.
51. The parties are in dispute as to whether the form of the auction was even designed to achieve particularly high revenue. For example, the fact that in all just five licences were awarded and not six - as in Germany for instance - could be considered, on the one hand, to be an artificial means of restricting the supply leading to an increase in revenue. On the other hand, the decision to bring five licences onto the market could also be justified by reference to regulatory considerations. (19) In order to increase competition there was to be a new entrant in addition to the four incumbent bidders. If there had been a larger number of competitors, amongst whom the market would have had to be divided, it might not have been possible to guarantee the profitability of high investment in the networks.
52. Ultimately, however, there is no need to answer this question any more than the question of whether the acquisition of revenue was any motive at all for the form of the procedure used in the award of the licences.
53. Objectively speaking, the Secretary of State awarded the licences in consideration of a monetary payment that was to reflect the commercial value of the licences and which was many times in excess of the amount spent on the licensing procedure. By providing under the rules of the auction for minimum bids of up to GBP 125 million, provision was also immediately made by the Government for a considerable amount of revenue to be achieved. When categorising the auctioning of licences for value added tax purposes it cannot be relevant whether achieving that revenue was the Government's motive or just an ancillary effect that necessarily followed from the form of the licensing procedure.
54. Nor is categorisation as an economic activity precluded by the fact that the award of the licences ultimately fitted in with a Community-law-orientated regulatory framework. The fulfilment of these legal requirements also just constitutes a (mandatorily prescribed) purpose that must be disregarded when assessing an action as an economic activity. (20)
55. It is apparent from point 7 in Annex D to the Sixth Directive that a regulatory activity can be subject to value added tax as an economic activity. Activities that are always to be considered State activities subject to value added tax under the third subparagraph of Article 4(5) of the Sixth Directive include the transactions of agricultural intervention agencies in respect of agricultural products carried out pursuant to regulations on the common organisation of the market in those products. Where an intervention agency sells products from its stock, therefore, value added tax will be payable even though such transactions are primarily intended to regulate the market and not to obtain income.
56. The result of concentrating on the objective external features of a transaction is to give the concept of economic activity a wide scope, which is in accordance with the view of the Court of Justice. (21) If, at this stage of appraisal, one were to have regard to the consideration that a public body was acting in the performance of its statutory regulatory duties, the scope of the Directive would immediately be considerably reduced. There would then, in particular, be very little scope for the application of Article 4(5) of the Sixth Directive, even though that provision contains specific rules governing public authorities.
57. The Court has admittedly ruled, particularly in the so-called "Eurocontrol judgment", (22) to which some of the parties in this case have referred, that there is no economic activity for the purposes of the Treaty rules of competition where the powers of a public authority are exercised.
58. Competition law and the Sixth VAT Directive are, however, based on differing concepts of economic activity. Under competition law the exercise of public authority is considered to be the criterion precluding an activity from having relevance for competition purposes. No separate provision is made there, however, for the activities of a State when exercising public authority.
59. The concept of economic activity in Article 4(1) and (2) of the Sixth Directive is wider than its corresponding term under competition law. The exercise of public authority is not initially a factor here. That element is not taken into consideration until a later stage of appraisal, that is to say in the context of the special provision in Article 4(5). That provision would be virtually superfluous if, by analogy with competition law, there were to be no scope at all for the application of the Sixth VAT Directive in the case of acts by public authorities.
2. Exploitation of property for the purpose of obtaining income therefrom on a continuing basis
60. Article 4(2) of the Sixth Directive specifically provides that the exploitation of tangible or intangible property for the purpose of obtaining income therefrom on a continuing basis is to be considered an economic activity. The right to operate mobile devices in defined sections of the frequency spectrum constitutes intangible property.
61. It is established case-law that, in accordance with the requirements of the principle that the common system of value added tax should be neutral, the term "exploitation" refers to all transactions, whatever may be their legal form. (23) The Court has therefore considered, for instance, that leasing constitutes exploitation of property which is to be classified as an economic activity within the meaning of Article 4(2) of the Sixth Directive. (24) The United Kingdom assigned licences to use frequencies to the appellants for a limited period of time on payment of a levy. That transaction, which is similar to a leasing or hiring transaction, is to be considered exploitation of intangible property for the purpose of obtaining income therefrom.
62. However, the Netherlands and Danish Governments argue that this does not constitute obtaining income on a continuing basis because the award of the licences was a one-off transaction.
63. Although the term "nachhaltig" used in the German version is not quite clear, it is apparent from reference to the other language versions that income must be obtained in the long term. (25) The purely occasional commercial exploitation of property does not therefore constitute an economic activity for the purposes of Article 4(1) and (2) of the Sixth Directive, as the Court ruled in Enkler. (26)
64. The award of licences under consideration in this case, however, does not constitute occasional use in that sense. A brief reminder of the circumstances of the Enkler case is called for by way of explanation. That case concerned the question of whether the occasional hiring out of a motor caravan that the owner mainly used for private purposes is still to be considered exploitation of property for the purpose of obtaining income therefrom on a continuing basis.
65. The Court took the nature of the property as the starting point for its appraisal. It said that the fact that property is suitable only for economic exploitation will normally be sufficient to find that its owner is exploiting it for the purposes of his economic activities and, consequently, for the purpose of obtaining income on a continuing basis. On the other hand, if, by reason of its nature, property is capable of being used for both economic and private purposes, all the circumstances in which it is used will have to be examined in order to determine whether it is actually used for the purpose of obtaining income on a regular basis. (27)
66. The right to use radio frequencies to supply UMTS mobile communications can only be considered economic exploitation. Consequently, there is ab initio no question of distinguishing between the economic and private exploitation of property. Nor can there therefore be any question of a purely occasional economic activity, which is subsidiary to private exploitation.
67. Nor does the fact that the licences were awarded just once for a lengthy period of time make it occasional exploitation for economic purposes. It is of no relevance in this context how often a taxable person concludes comparable transactions; what is relevant is whether the particular property provides long-term revenue. There can be no doubt about this here. The right to use frequencies has been assigned for 20 years and provides the State with revenue over that whole period of time.
68. The fact that the levy was payable as a one-off amount at the time that the licences were awarded and not as a periodical payment does not alter the fact that revenue is obtained on a continuing basis. The licence fee could also, in theory, have been arranged in a different way. However, the application of the Sixth Directive cannot depend upon the modes of payment of the licence fee available to the parties.
69. Quite apart from this, however, the licences can be surrendered early or revoked, so that the right of use might not continue to be awarded on a one-off basis for 20 years.
70. The grant of a right of use for a limited period is ultimately not comparable with the sale of securities - which has been found by the Court not to be an economic activity for two reasons - unless undertaken in the course of commercial investment management. (28)
71. Firstly, income that is received from holding and selling securities - that is to say, dividends and profits made on the share price - is not the result of active exploitation of the securities but is the direct consequence of ownership thereof. In contrast to that situation, income received from the award of licences is not revenue accruing only from the right of disposal of the frequencies, such as dividends and profits on sale, but is income from the exploitation of that right.
72. Secondly, revenue from the sale of securities is only received once. Once the asset no longer forms part of the seller's property he can no longer use it to produce income. The State, however, is not awarding a final right of disposal of the frequencies. Indeed, that right reverts back to it again on the expiry of the licences, when it can be granted anew.
73. The answer to the first question must therefore be that:
In the circumstances of the main proceedings the auctioning by a State body of licences encompassing the right to use defined parts of the electro-magnetic spectrum to supply UMTS mobile communications services for a specified period of time is to be considered exploitation of intangible property for the purpose of obtaining income therefrom on a continuing basis and is therefore to be considered an economic activity for the purposes of Article 4(1) and (2) of the Sixth Directive.
B - The second to fifth questions: circumstances in which public bodies act as taxable persons
1. Preliminary remarks on the structure of Article 4(5) of the Sixth Directive
74. Article 4(5) of the Sixth Directive contains different arrangements for when the State is to be considered a taxable person. (29)
75. According to the basic rule contained in the first subparagraph, States, regional and local government authorities and other bodies governed by public law are not to be considered taxable persons in respect of the activities or transactions in which they engage as public authorities. The provision therefore exempts public authorities from general liability to tax even where they pursue an economic activity within the meaning of Article 4(1) and (2) of the Sixth Directive. The exercise of public authority is therefore equated with the act of a private-individual consumer.
76. Under subparagraph 2, however, notwithstanding subparagraph 1, the State is nevertheless to be deemed a taxable person where treatment as a non-taxable person would lead to significant distortions of competition. This provision is based on the idea that certain State bodies might enter into competition with private-sector competitors - even where those State bodies engage in transactions within the scope of their public authority. Its purpose is therefore to guarantee fiscal neutrality. (30)
77. Finally, under subparagraph 3, State bodies are always to be considered taxable persons in relation to certain sectors listed in Annex D provided that the activities are not carried out on such a small scale as to be negligible. Hence there is ultimately no need to decide whether, in the case of the activities catalogued, the State is pursuing those activities in the exercise of its public authority.
78. The sectors listed in Annex D - which include telecommunications - essentially relate to economic transactions (31) that often are or have been engaged in by the State in the exercise of its public authority just because of their significance to the public interest, but which can also be provided by private-sector undertakings. (32) Some of the economic sectors stated have now been liberalised. Private undertakings are here actually in competition with former monopoly suppliers, some of which have been privatised and some of which are still State-owned. At the time that the Sixth VAT Directive was adopted in 1977 it clearly took such a development into account.
79. If the award of mobile communications licences should be classified as an activity in the telecommunications sector not carried out on such a small scale as to be negligible it would be subject to value added tax in any event irrespective of the exercise of public authority or of any actual distortion of competition. It would therefore seem appropriate to answer the fifth question referred for a preliminary ruling before the second, third and fourth.
2. The fifth question: does the term "Telecommunications" in Annex D to the Sixth Directive also encompass the auctioning of UMTS licences?
80. The parties are essentially in disagreement as to whether the term "Telecommunications" in point 1 of Annex D means just the supply of telecommunications services (33) per se - which is the view of the Governments involved and of the Commission - or whether it also includes other activities in connection with those services, namely the award of licences, which is the view taken by the appellants.
81. The wording of Annex D does not provide any clarification of this disputed issue. No significance can be attributed to the fact that the German version uses the now outdated term "Fernmeldewesen" and not the term "Telekommunikation". Other versions use the terms here that have always been customary in their languages (for instance "telecommunications" or "télécommunications"). What is more, the terms "Fernmeldewesen" and "Telekommunikation" are virtually synonymous, as the German Government has correctly stated.
- Historical approach
82. Taking a historical approach, it could conceivably be argued that the award of mobile communications licences to private undertakings could not be covered by the term "telecommunications" because licences of that kind did not exist on the date that the Directive was adopted in 1977. At that time the State administrative postal authorities were providing telecommunications services under their own direct management. The Community legislature probably did not therefore originally intend to adopt legislation in relation to telecommunications licences.
83. However, the historical approach to interpretation is nevertheless of only subsidiary importance and is not decisive on its own. (34) The provisions of the Sixth VAT Directive should really also be interpreted systematically, with particular reference to its objective.
- Systematic approach
84. The definition of telecommunications services in the 10th indent of Article 9(2)(e) of the Sixth Directive (35) might initially play a part in such a systematic approach. This reads:
"Telecommunications services shall be deemed to be services relating to the transmission, emission or reception of signals, writing, images and sounds or information of any nature by wire, radio, optical or other electromagnetic systems, including the related transfer or assignment of the right to use capacity for such transmission, emission or reception ...".
85. Article 9 stipulates the location that is to be considered the place where a service is supplied. Article 9(2)(e) then states inter alia in respect of the telecommunications services described there that for cross-border services the place where the customer is established is to be deemed the place where the services are supplied.
86. In so far as the Governments and the Commission have considered reference to that definition to be at all appropriate they have taken the view that it only encompasses telecommunications services in the narrower sense. The rights of use mentioned in that provision, namely "the right to use capacity for such transmission, emission or reception", refer, in their opinion, to the infrastructure and not to licences for the use of the frequency spectrum.
87. The appellants have come to the opposite conclusion from this passage, the English version of which reads "including the related transfer or assignment of the right to use capacity for such transmission, emission or reception". They argue that the term capacity is also being used in the sense of frequency spectrum capacity.
88. The English version does admittedly appear to allow of such an interpretation. However, other language versions support the interpretation put on it by the Governments concerned and by the Commission. (36) In the case of divergence between the language versions particular significance is to be attached to the meaning and purpose of a provision, (37) which also militates against including the licensing of frequencies here.
89. As the Netherlands Government has correctly argued, the legislation was intended to ensure that telecommunications services provided from outside the Community to customers in the Community were taxed in the Community. (38) This recital only relates to telecommunications services in the narrower sense as the licences are always awarded by the appropriate national authorities. What is more, most of the licensees, who are the customers in this transaction, would also have their place of establishment in the State in which the licences are awarded as it is hardly conceivable that a UMTS mobile communications network would be set up and operated without having a place of establishment or a subsidiary in the State concerned.
90. The United Kingdom, Netherlands and Danish Governments and the Commission also refer to the definition of telecommunications services contained in the relevant internal market directives. It is certainly in accordance with the practice of the Court to also have regard, when interpreting the Sixth VAT Directive, to definitions in legal acts which relate to the sector concerned and do not pursue aims that diverge from VAT law. (39)
91. Article 2(4) of Council Directive 90/387/EEC of 28 June 1990 on the establishment of the internal market for telecommunications services through the implementation of open network provision (40) defines telecommunications services as "services whose provision consists wholly or partly in the transmission and routing of signals on a telecommunications network by means of telecommunications processes, with the exception of radio broadcasting and television". According to that definition the award of UMTS licences does not constitute a telecommunications service.
92. There is doubt, however, as to whether the definitions cited can be applied to Annex D without any proviso because they each refer to telecommunications services, whereas Annex D lists telecommunications. This term could be construed as a wider description of that sector of activity, including activities other than telecommunications services in the narrower sense.
- Teleological approach
93. What is decisive, however, is the spirit and purpose of the provision in the third subparagraph of Article 4(5) of the Sixth Directive in conjunction with Annex D. As Advocate General Alber has said, the activities catalogued in Annex D are activities where the economic connection is primary and clear. (41)
94. As those supplies are, or could be, typically offered by private-sector undertakings as well, there is a presumption of a material effect on competition in general. The purpose of the legislation is to put the State in the same position in these circumstances as a private-sector taxable person. Under the second subparagraph of Article 4(5) other State transactions are made subject to value added tax only in particular cases where there is a risk of significant distortions of competition.
95. Equating the State with private-sector taxable persons is only appropriate in relation to telecommunications services in the narrower sense as both supplies can now also be offered by private-sector undertakings. As things stand at present, however, (42) the initial award of licences to use defined parts of the spectrum is a task that is reserved to the State. (43) Even if the award of licences might possibly in certain circumstances have to compete with the resale of licences by private concerns, (44) it is not appropriate to equate the State in general with private-sector taxable persons in that sphere of activity. It is only necessary to examine whether the State transaction should be taxed under the second subparagraph of Article 4(5) of the Sixth Directive in order to protect competition.
96. The answer to the fifth question referred for a preliminary ruling must therefore be that, as things stand at present, the term "telecommunications" in point 1 of Annex D to the Sixth Directive does not include the auctioning of UMTS licences by the State.
3. The second question: the exercise of public authority within the meaning of the first subparagraph of Article 4(5) of the Sixth Directive
97. Under the first subparagraph of Article 4(5) of the Sixth Directive two conditions must be fulfilled in order for there to be no liability to tax: the activities must be carried out by a body governed by public law and they must be carried out by that body acting as a public authority. (45) The Secretary of State and the RA undoubtedly fulfil the first condition.
98. The Court put the second condition in concrete terms in Fazenda Pública v Câmara Municipal do Porto: (46)
"As regards the latter condition, it is the way in which the activities are carried out that determines the scope of the treatment of public bodies as non-taxable persons ... [(47)].
It is thus clear from the settled case-law of the Court that activities pursued as public authorities within the meaning of the first subparagraph of Article 4(5) of the Sixth Directive are those engaged in by bodies governed by public law under the special legal regime applicable to them and do not include activities pursued by them under the same legal conditions as those that apply to private economic operators ... [(48)]".
99. The Court has also stated that the subject-matter or purpose of the activity is not relevant to such a determination. (49)
100. The appellants conclude from the case-law that it is primarily the form of the transaction which is relevant. They argue that the auctioning of the licences took place on the same terms and conditions as would apply under English law to corresponding transactions under private law. No account should be taken of the fact that the auction served the purpose of regulating the market.
101. The Member States concerned in these proceedings and the Commission, on the other hand, stress that under the relevant Community law and national legislation the award of UMTS licences was reserved exclusively to the State, which has special obligations in that respect.
102. It should be noted that under Article 2(1)(a) of Directive 97/13 only a State regulatory authority is permitted to award individual licences to operate a telecommunications network. The authority must comply with the requirements set out in Articles 9 and 10 of the Directive. If a Member State only awards a limited number of individual licences it has to make its selection on the basis of criteria which are objective, non-discriminatory, detailed, transparent and proportionate (Article 10(3) of Directive 97/13). The provisions of Article 11(2) of Directive 97/13 apply to charges imposed in this connection.
103. Although final appraisal of the position under national law is reserved to the referring court there can be no doubt that the award of a UMTS licence under the WTA 1949, the WTA 1998 and the WTA Regulations can be undertaken only by the Secretary of State. The obligations imposed upon him in that connection under national law are based on the requirements of Directive 97/13. Furthermore, only the Secretary of State can revoke a licence, not just in those cases provided for in the licence itself but also for reasons of national security or in order to comply with obligations under Community law or international law. (50)
104. The Secretary of State, represented by the RA, therefore awarded the UMTS licences under legislation applicable to him alone. No private individual could award such licences. This permits the conclusion that the auctioning of the licences was an activity which was the responsibility of a State body acting as a public authority.
105. This is not precluded by the fact that the licences were awarded by auction, which is a procedure deriving from civil law and one which can therefore also be used by parties in the private sector.
106. The Court has considered the manner in which activities are carried out to be crucial, but it would not be enough to construe this as just meaning the manner in which the transaction is to be conducted, that is to say its form. It also depends primarily on whether private individuals can engage in any comparable activity at all on the basis of the relevant legislation. If that were to be the case the State would have to be treated as a taxable person so as not to jeopardise the neutrality of imposing value added tax. The fact that, when exercising the powers exclusively afforded to it, the State makes use of procedures available under the civil law does not, however, have any effect on fiscal neutrality.
107. It is not the general provisions of civil law on auctions that are crucial but the actual legal framework for the auctioning of the UMTS licences.
108. The appellants" argument would mean that public authority would only be exercised where the State adopts an administrative act, that is to say exercises public authority in the strict sense of the term. However, the Court expressly declined to accept that interpretation in the "Motorway toll" judgments. (51)
109. In Fazenda Pública v Câmara Municipal do Porto (52) the Court nevertheless concluded from the fact that the management of public car parks involved the exercise of public powers that the activity was subject to rules of public law. Acts of public authority where the State and citizens are in a relationship of superiority/subordination are considered by the Court to constitute an indication of the exercise of public authority within the meaning of the first subparagraph of Article 4(5) of the Sixth Directive but are not an essential prerequisite. (53)
110. The uniform application of the Sixth VAT Directive might also be jeopardised by concentrating on the legal framework of the form of a transaction, as one State's use of forms of transaction under private law might possibly be wider than another's. The manner in which forms of transaction under public law are distinguished from those under private law might also differ between the various national legal systems.
111. It should also be noted that the first subparagraph of Article 4(5) of the Sixth Directive only requires the transactions to be engaged in as public authorities. The auctioning of UMTS licences must not therefore be considered in isolation. (54) On the contrary, that activity comes within the overall framework of spectrum management and regulation of the telecommunications sector. The State essentially exercises public powers in this context, for instance by transposing the provisions of the UMTS Decision or the internal market directives into national law. It also acts in the exercise of its public powers when it imposes sanctions under criminal law for the unauthorised operation of radio equipment under the WTA 1949 or when it revokes a licence for reasons of national security or in order to comply with obligations under Community law or international law.
112. It is not inconsistent for the wider legal context of an activity to be taken into account at this stage of appraisal, when only the external aspect of a transaction is considered relevant to its classification as an economic activity. It is indeed in conformity with the logic of Article 4 of the Sixth Directive to ensure a comprehensive application of the directive at the first stage by affording Article 4(1) and (2) a wide interpretation and to then have regard to the specific legal framework conditions for State actions when applying Article 4(5).
113. Finally, categorisation of the auctioning of the licences as an activity in the exercise of public authority is not precluded by the fact that as a result the State received a high amount of revenue. This can admittedly lead to the State action being attributed economic characteristics within the meaning of Article 4(2) of the Sixth Directive - as demonstrated. Nevertheless, the State will still be exercising public authority where it acts on the basis of a special legal regime applicable to it alone.
114. The answer to the second question must therefore be:
Activities pursued by bodies governed by public law under a special legal regime applicable to them are to be considered activities engaged in as public authorities within the meaning of the first subparagraph of Article 4(5) of the Sixth Directive. The exercise of public authority is not precluded by the fact that, in fulfilling the responsibilities exclusively allocated to it, the State makes use of a procedure derived from civil law or receives a high amount of revenue from its activity.
4. The third question: Can the activity be carried out partly as an economic activity and partly in the exercise of public authority?
115. The appellants have argued, in the alternative, that the award of UMTS licences was at least partly of an economic nature or was at least partly not an activity engaged in as a public authority.
116. It should be noted, firstly, that the judgment in Armbrecht (55) to which the appellants refer in this context concerned a case in which part of a property was used for commercial purposes and the resultant consequences on the law regarding input tax. In the present case, however, the question is whether the auctioning of the licences was itself subject to value added tax because it was conducted by a taxable person in the course of its economic activity.
117. In the CCP judgment (56) the Court stated that each supply of a service must normally be regarded as distinct and independent. As a supply which comprises a single service from an economic point of view should not be artificially split, so as not to distort the functioning of the VAT system, the essential features of the transaction must be ascertained in order to determine whether the taxable person is supplying the customer with several distinct principal services or with a single service. If there is only one transaction it must also, in principle, be treated as a single transaction for the purposes of liability to VAT. (57)
118. There are no indications in the request for a preliminary ruling that the award of UMTS licences comprised two or more transactions. Indeed, a licence was awarded by a single act and a single levy was charged for it.
119. It is also irrelevant in this context that the licensees and the amount of the levy were first of all ascertained by way of an auction and that the licences were only then awarded on payment of the levy, because the latter transactions are just ancillary implementing measures not open to appraisal separately from the auction.
120. As has been established, the State was indeed acting in an economic capacity in the supply of that single service but it was at the same time exercising public authority. In the absence of any true indication of any division of transactions open to separate appraisal, the third question is a hypothetical one and therefore does not need to be answered. (58)
5. The fourth question: Does treatment as a non-taxable person lead to significant distortions of competition?
121. Under the second subparagraph of Article 4(5) of the Sixth Directive State bodies are also to be considered taxable persons in respect of activities engaged in as a public authority if treatment as non-taxable persons would lead to significant distortions of competition.
122. The Court held in Comune di Carpaneto Piacentino that the Member States are required to
"ensure that bodies governed by public law are treated as taxable persons in respect of activities in which they engage as public authorities where those activities may also be engaged in, in competition with them, by private individuals, in cases in which the treatment of those bodies as non-taxable persons could lead to significant distortions of competition ...". (59)
123. It was for the State alone to initially award the licences, so that there is no question of there being any competition between identical services supplied by the State and those provided by other suppliers at the time that the licences were auctioned. However, the appellants argue that the award of licences for frequencies by the State without being subject to VAT could come into competition with any possible resale of licences by private-sector suppliers that might take place in the future.
124. Paragraph 4 of the licences issued in 2000 nevertheless provides that they are not transferable. Furthermore, at that date neither Directive 97/13 nor the WTA 1998 had made provision for trading in licences.
125. In the Information Memorandum published by the Secretary of State on 1 November 1999, however, it was said that the licences that were to be auctioned might subsequently be made transferable if spectrum trading were later to be introduced. However, it was uncertain whether and when this might happen. Article 9(4) of Directive 2002/21 now lays down the requirements as to the conditions to be observed when transferring rights to use radio frequencies. According to the information provided in the request for a preliminary ruling the authorities in the United Kingdom do not envisage trading in mobile communication frequencies beginning before 2007.
126. It is against this background that the referring court asks how likely and how close in time a "significant distortion of competition" within the meaning of the second subparagraph of Article 4(5) of the Sixth Directive has to be, and what significance the principle of neutrality of VAT has in this context.
127. It should be noted, first, that capacity as a taxable person or non-taxable person has to be determined at the time of the transaction. (60) Consequently, the effect on competition must also, in principle, exist at that date.
128. This means that there must already have been a market for those rights of use at the time that the frequencies were allocated, that is to say, firstly, that there must have been comparable rights of use already in existence and, secondly, that those rights must have been transferable between parties in the private sector. Only in these circumstances can the allocation of frequencies by the State be in competition with the transfer of rights to use the spectrum by parties in the private sector.
129. No UMTS licences were available on the British market prior to the auctioning of these licences. Furthermore, trading in licences was not permitted by law. It was not even possible to foresee whether or when the legal framework for this would be put in place.
130. Admittedly, the Court ruled in Taksatorringen (61) that Article 13A(1)(f) of the Sixth Directive also covers distortions of competition to which the exemption might give rise in the future. However, the risk of distortions of competition must be real. (62)
131. The risk of distortions of competition can be real even if no competitor is at present offering competing supplies subject to value added tax. A disadvantageous starting point is in itself liable to dissuade potential competitors from becoming active in the market. A real risk of this happening is ruled out, however, where there are no potential competitors to offer supplies in competition with licences for frequencies awarded by the State because of the legislative framework.
132. If the State should award licences again at a later date after spectrum trading has already been introduced then it will be necessary to reassess treatment for VAT purposes in respect of that round of licensing. (63) The VAT treatment of licences subsequently awarded by the State does not, however, have retrospective effect on the award of the licences in 2000 at issue here.
133. The appellants also rely on the following consideration to demonstrate distortion of competition: if, once spectrum trading has been introduced, a mobile communications supplier acquires a licence from another undertaking and has to pay VAT on it, the party making that acquisition will be at a disadvantage compared with competitors who have previously received a licence from the State free of VAT. Admittedly, they say, the secondary-market licensee could usually deduct the VAT paid as input tax but in certain situations this might occasion temporary liquidity problems.
134. As already established, however, there must be a potentially competitive relationship in existence at the time of the transaction in question. The possibility of the necessary legal framework conditions being created later on is not sufficient because liability to tax cannot depend on prognoses that are to a greater or lesser extent uncertain.
135. Quite apart from this, however, the State transaction would only have to be subject to tax if, according to the findings of the referring court, treatment as a non-taxable person would lead to significant distortions of competition within the meaning of the second subparagraph of Article 4(5) of the Sixth Directive.
136. This would be the case, for instance, if the State were to provide final consumers with the same supplies as those provided by private undertakings, so that in the former case customers would pay the charge without VAT and in the latter case plus VAT. (64) As final consumers are not entitled to deduct input tax the full amount of VAT would make the transaction with a private supplier that much more expensive.
137. If, on the other hand, a taxable person were to acquire a UMTS licence from a party in the private sector this would only prove less attractive than acquiring it from the State in certain types of cases - and also only to a minimal extent - as the value added tax could either be deducted as input tax immediately or refunded within a short period. Admittedly, the associated funding costs could be large in absolute terms but in the context of the overall sums expended on acquiring the UMTS licences the extent of that expenditure would not, in general, be such as to give rise to significant distortions of competition.
138. What is more, the introduction of spectrum trading was not at all foreseeable with any certainty in the year 2000 and has still not actually been introduced in the United Kingdom. The longer the period that elapses between the award of State licences and the possibility of acquiring licences on the secondary market, the more the whole market environment will change. Other factors, such as, for example, reassessment of the economic value of the licences in the light of the emergence of competing technology for UMTS mobile communications, will then have quite different prominence compared to any liquidity problems as a result of a temporary outlaying of input tax. This consideration also shows that a distortion of competition within the meaning of the second subparagraph of Article 4(5) of the Sixth Directive can only be established, in principle, if both transactions are available at approximately the same time and the potential licensee has a choice between two comparable offers.
139. The answer to the fourth question must therefore be:
A significant distortion of competition within the meaning of the second subparagraph of Article 4(5) of the Sixth Directive only exists where there is a real risk that treatment of the State as a non-taxable person has a materially adverse effect on the competitive position of present or potential providers of competing supplies. No such risk exists, in principle, where at the time of the transactions by the State, private-sector suppliers are precluded by the legal framework conditions from bringing supplies onto the market that are in competition with State supplies.
C - Sixth question: Interpretation in conformity with the Directive of national legislation transposing Article 4(5) of the Sixth Directive
140. On the basis of section 41(2) of the VAT Act 1994 the Treasury issued Treasury Directions under which certain activities on the part of the public administration - including the award of licences and telecommunications - are to be considered activities liable to VAT. (65)
141. As the Court ruled in Fazenda Pública v Câmara Municipal do Porto, (66) the Member States may transpose the second subparagraph of Article 4(5) of the Sixth Directive by creating a legal framework and assigning to the administration the power to decide according to statutory criteria when a State activity is to be subject to value added tax in order to avoid significant distortions of competition.
142. The referring court now wishes to establish to what extent importance is to be attached, when applying the national legislation stated, to the principle of interpretation of national law in accordance with directives, as expounded in Marleasing. (67)
143. When it applies domestic law, and in particular legislative provisions specifically adopted for the purpose of implementing the requirements of a directive, the national court is bound to interpret national law, so far as possible, in the light of the wording and the purpose of the directive concerned, in order to achieve the result sought by the directive and consequently comply with the third paragraph of Article 249 EC. (68)
144. This principle must be observed in applying all domestic legislation. It also applies to directions given by the administration that, in implementation of Article 4(1) and (5) of the Sixth Directive, specify which goods and services supplied by public authorities are to be treated as taxable supplies.
145. However, the appellants contend that the principle of interpretation of national law in accordance with directives does not apply to Treasury Directions as the tax authority was thereby exercising the discretion afforded to it under the Directive.
146. This argument cannot be accepted. Where national authorities, in transposing the second subparagraph of Article 4(5) of the Sixth Directive, classify certain activities of a public body as subject to tax, they are bound by the legal requirements of the Directive. This means that the existence of a significant distortion of competition, as stated, depends, in principle, on the goods or services supplied by the State being in competition at the time of that supply with corresponding goods or services supplied by parties in the private sector. The Directive does not afford national authorities the power to make goods or services supplied by the State in the exercise of its public authority subject to value added tax even where for legal reasons there is no such competitive relationship and the case does not fall within the third subparagraph of Article 4(5) of the Sixth Directive in conjunction with Annex D.
147. The appellants also contend that the State cannot rely on an interpretation in accordance with the Directive to the detriment of private individuals. This view is not correct either. The courts" obligation to interpret domestic law in accordance with a directive applies irrespective of whether it adversely affects private individuals. The Court has emphasised the obligation of interpretation in accordance with directives even in cases between private individuals, in which taking account of Community law thus necessarily has an adverse effect on one of the private individual parties. (69) It has also acknowledged that reliance on a directive may indirectly have adverse repercussions on the rights of individuals. (70)
148. This does not conflict with established case-law to the effect that a directive cannot of itself impose obligations on an individual and cannot therefore be relied upon as such against an individual. (71) This rule only applies to the direct application of directives and not to interpretation in conformity with a directive. In the case of interpretation in conformity with a directive the directive does not itself impose obligations on the individual; this is done by the national law which is being applied in conformity with the directive.
149. It is for the national court to decide whether an interpretation of national law in conformity with the directive is possible in the present case. Regard should therefore be had not only to the Treasury Directions themselves. The national court has to consider national law as a whole in order to assess to what extent it may be applied so as to not to produce a result contrary to that sought by the directive. (72)
150. If the application of interpretive methods recognised by national law enables, in certain circumstances, a provision of domestic law to be construed in such a way as to avoid conflict with another rule of domestic law or the scope of that provision to be restricted to that end by applying it only in so far as it is compatible with the rule concerned, the national court is bound to use those methods in order to achieve the result sought by the directive. (73) However, Community law does not demand interpretation of national law in conformity with directives contra legem. (74)
151. The sixth question must therefore be answered as follows:
Where a Member State chooses to implement Articles 4(1) and 4(5) of the Sixth Directive by legislation conferring on a Government department a statutory power to issue directions specifying which transactions by Government departments are to be treated as taxable transactions and where the Government department exercises that power, a national court applying that legislation is bound to interpret national law so far as possible in the light of the wording and the purpose of the Sixth Directive, in order to achieve the result sought by the Directive and consequently comply with the third paragraph of Article 249 EC.
V - Conclusion
152. In conclusion, I propose that the replies to the questions referred by the VAT and Duties Tribunal London should be as follows:
(1) In the circumstances of the main proceedings the auctioning by a State body of licences encompassing the right to use defined parts of the electro-magnetic spectrum to supply UMTS mobile communications services for a specified period of time is to be considered exploitation of intangible property for the purpose of obtaining income therefrom on a continuing basis and is therefore to be considered an economic activity for the purposes of Article 4(1) and (2) 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.
(2) As things stand at present, the term "telecommunications" in point 1 of Annex D to the Sixth Directive does not include the auctioning of UMTS licences by the State.
(3) Activities pursued by bodies governed by public law under a special legal regime applicable to them are to be considered activities engaged in as public authorities within the meaning of the first subparagraph of Article 4(5) of the Sixth Directive. The exercise of public authority is not precluded by the fact that, in fulfilling the responsibilities exclusively allocated to it, the State makes use of a procedure derived from civil law or receives a high amount of revenue from its activity.
(4) A significant distortion of competition within the meaning of the second subparagraph of Article 4(5) of the Sixth Directive only exists where there is a real risk that treatment of the State as a non-taxable person has a materially adverse effect on the competitive position of present or potential providers of competing supplies. No such risk exists, in principle, where at the time of the transactions by the State, private-sector suppliers are precluded by the overall legal regime from bringing supplies onto the market that are in competition with State supplies.
(5) Where a Member State chooses to implement Articles 4(1) and 4(5) of the Sixth Directive by legislation conferring on a Government department a statutory power to make directions specifying which transactions by Government departments are to be treated as taxable transactions and where the Government department exercises that power, a national court applying that legislation is bound to interpret national law, so far as possible, in the light of the wording and the purpose of the Sixth Directive in order to achieve the result sought by the Directive and consequently comply with the third paragraph of Article 249 EC.
1 - Original language: German.
2 - IMT-2000: International Mobile Telecommunications-2000 (standard developed by the International Telecommunication Union ("ITU")); UMTS: Universal Mobile Telecommunications System (standard developed in the context of the European Conference of Postal and Telecommunications Administrations ("CEPT") and the European Telecommunications Standards Institute ("ETSI"), which is part of the so-called IMT-2000 family).
3 - This is therefore, to a certain extent, value added tax that was paid without anybody having noted it, as the representative of the Netherlands Government correctly stated in the oral proceedings before the Court.
4 - 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).
5 - Case C-284/04 T-Mobile Austriaand Others.
6 - Licences were awarded by auction inter alia in Germany, Austria, Belgium, Cyprus, Denmark, Greece, Hungary, Italy, the Netherlands, the Czech Republic and the United Kingdom. In Spain, Finland, France, Luxembourg, Poland, Portugal, Slovakia, Slovenia and Sweden the licence holders were chosen by way of an invitation to tender (so-called beauty contest). In the States mentioned (with the exception of Hungary and Finland) the awarding of licences was not made subject to value added tax. In Finland licences were granted free of charge.
7 - CEPT is an international organisation whose membership is currently made up of postal and telecommunications regulatory authorities from 46 European countries. (For further details see the organisation's home page at: www.cept.org.)
8 - This identifies the following frequency bands: 1900-1980 MHz, 2010-2025 MHz and 2110-2170 MHz for terrestrial UMTS applications and 1980-2010 MHz and 2171-2200 MHz for satellite-based UMTS applications.
9 - See the information on the European Radiocommunications Office ("ERO") home page at: www.ero.dk/ecc.
10 - Directive 97/13/EC of the European Parliament and of the Council of 10 April 1997 on a common framework for general authorisations and individual licences in the field of telecommunications services (OJ 1997 L 117, p. 15), which was repealed with effect from 24 July 2003 by Directive 2002/21/EC of the European Parliament and of the Council of 7 March 2002 on a common regulatory framework for electronic communications networks and services (Framework Directive) (OJ 2002 L 108, p. 33).
11 - Cited in footnote 10.
12 - OJ 1999 L 17, p. 1.
13 - Under the system currently in use, in order to operate a network it is necessary to have one frequency for outward signals and one for return signals (Frequency Division Duplex - FDD). Licences A, C, D and E also each have 5 MHz of unpaired spectrum that can be used for time-displaced operation (Time Division Duplex - TDD).
14 - BT3G was owned at the time by British Telecommunications plc; after BT's mobile communications business was hived off in the form of mmO2, BT3G changed its name to O2 Third Generation Limited.
15 - Judgments in Case C-260/98 Commission v Greece [2000] ECR I-6537, paragraph 26, Case C-359/97 Commission v United Kingdom [2000] ECR I-6355, paragraph 41 and Case C-223/03 University of Huddersfield [2006] ECR I-1751, paragraph 47; see also the judgments in Case 235/85 Commission v Netherlands [1987] ECR 1471, paragraph 8, and in similar vein inter alia the judgments in Case 268/83 Rompelman [1985] ECR 655, paragraph 19, and in Case C-497/01 Zita Modes [2003] ECR I-14393, paragraph 38.
16 - Judgments in Case C-4/94 BLP Group [1995] ECR I-983, paragraph 24, and in Joined Cases C-354/03, C-355/03 and C-484/03 Optigen and Others [2006] ECR I-483, paragraph 45.
17 - See the judgments cited in footnote 16.
18 - If there were no scope for the application of the Sixth Directive ab initio where levies are paid there would have been no need for the clarification in the first subparagraph of Article 4(5) of the Sixth Directive that the State is not to be considered a taxable person even where it collects payments for its activities.
19 - Under Article 10(1) of Directive 97/13 the Member States may limit the number of individual licences only to the extent required to ensure the efficient use of radio frequencies.
20 - See the judgments in Commission v Netherlands (cited in footnote 15, paragraph 10), Commission v Greece (cited in footnote 15, paragraph 28), and Commission v United Kingdom (cited in footnote 15, paragraph 43).
21 - See the case-law cited in footnote 15.
22 - Judgment in Case C-364/92 SAT Fluggesellschaft [1994] ECR I-43, paragraph 30; see also the judgments in Case C-343/95 Diego Calì & Figli [1997] ECR I-1547, paragraphs 22 and 23, and in Case C-309/99 Wouters and Others [2002] ECR I-1577, paragraph 57.
23 - Judgments in Case C-186/89 Van Tiem [1990] ECR I-4363, paragraph 18, Case C-442/01 KapHag [2003] ECR I-6851, paragraph 37, Case C-77/01 EDM [2004] ECR I-4295, paragraph 48, and Case C-8/03 BBL [2004] ECR I-10157, paragraph 36.
24 - Judgments in Case C-230/94 Enkler [1996] ECR I-4517, paragraph 22, Case C-23/98 Heerma [2000] ECR I-419, paragraph 19. See also the judgment in Case 268/83 Rompelman [1985] ECR 655, in which the Court classified as an economic activity the acquisition of a right to the future transfer of property rights in part of a building.
25 - See, for example, the English version: "for the purpose of obtaining income therefrom on a continuing basis"; French: "en vue d'en retirer des recettes ayant un caractère de permanence"; Italian: "per ricavarne introiti aventi un certo carattere di stabilità"; Spanish: "con el fin de obtener ingresos continuados en el tiempo".
26 - Enkler judgment (cited in footnote 24, paragraph 20).
27 - Enkler judgment (cited in footnote 24, paragraph 27).
28 - Judgments in Case C-155/94 Wellcome Trust [1996] ECR I-3013, paragraph 32 et seq., and EDM (cited in footnote 23, paragraph 57 et seq.). See also with regard to the holding and acquisition of shares: the judgment in KapHag (cited in footnote 23, paragraph 38) and in Case C-465/03 Kretztechnik [2005] ECR I-4357, paragraph 19 et seq.
29 - See Advocate General Mischo, who pictures Article 4(5) as being built in "tiers", so to speak, proceeding by exceptions and counter-exceptions (Opinion delivered in Joined Cases 231/87 and 129/88 Comune di Carpaneto Piacentino and Others [1989] ECR 3233, point 8).
30 - Judgment in Joined Cases 231/87 and 129/88 Comune di Carpaneto Piacentino and Others [1989] ECR 3233, paragraph 22.
31 - See the Opinion delivered by Advocate General Alber in Case C-446/98 Fazenda Pública [2000] ECR I-11435, point 69.
32 - Annex D lists a total of 13 activities including, as well as telecommunications, the supply of water, gas and electricity, the transport of goods and passenger transport, port and airport services, the running of trade fairs and exhibitions, publicity bodies and travel agencies, the running of staff shops, etc.
33 - The United Kingdom Government refers in this context to the definition of telecommunications services in Article 2(4) of Council Directive 90/387/EEC of 28 June 1990 on the establishment of the internal market for telecommunications services through the implementation of open network provision (ONP) (OJ 1990 L 192, p. 1), which has since been repealed but according to which "telecommunications services" means services whose provision consists wholly or partly in the transmission and routing of signals on a telecommunications network by means of telecommunications processes, with the exception of radio broadcasting and television.
34 - See in this context my Opinion delivered on 13 July 2006 in Case C-278/05 Robins and Burnett, not yet reported in the ECR, points 80 and 81.
35 - The provision was inserted by Council Directive 1999/59/EC of 17 June 1999 amending Directive 77/388/EEC as regards the value added tax arrangements applicable to telecommunications services (OJ 1999 L 162, p. 63).
36 - See, in addition to the German version cited, the Italian version in particular (ivi compresa la cessione e la concessione, ad esse connesse, di un diritto di utilizzazione a infrastrutture per la trasmissione, l'emissione o la ricezione), the Dutch version (met inbegrip van de daarmee samenhangende overdracht en verlening van rechten op het gebruik van infrastructuur voor de transmissie, uitzending of ontvangst) and the French version (y compris la cession et la concession y afférentes d'un droit d'utilisation de moyens pour une telle transmission, émission ou réception) - the emphasis is mine).
37 - See the judgments in Case C-372/88 Cricket St. Thomas [1990] ECR I-1345, paragraph 19, Case C-2/95 SDC [1997] ECR I-3017, paragraph 22, and Case C-384/98 D. [2000] ECR I-6795, paragraph 16.
38 - See the fourth recital in the preamble to Directive 1999/59 (cited in footnote 35), which reads:
"Action should be taken to ensure, in particular, that telecommunications services used by customers established in the Community are taxed in the Community."
39 - See most recently the judgment in Case C-169/04 Abbey National and Others [2006] ECR I-0000, paragraph 61 et seq., and point 73 et seq. of my Opinion in that case delivered on 8 September 2005.
40 - OJ 1990 L 192, p. 1. Directive 1990/387 has now been repealed by Directive 2002/21 (cited in footnote 10). The definition of electronic communications service contained in Article 2(c) of the new Framework Directive includes telecommunications and, like its predecessor directive, is geared towards the conveyance of signals on electronic communications networks.
41 - Opinion in Fazenda Pública (cited in footnote 31, point 69).
42 - However, the Commission is considering introducing a more market-based approach to spectrum management (see the Communication from the Commission of 14 September 2005, A market-based approach to spectrum management in the European Union, COM/2005/400 final).
43 - See point 102 et seq. below.
44 - See the observations on the fourth question (point 121 et seq. below).
45 - Judgments in Case C-202/90 Ayuntamiento de Sevilla [1991] ECR I-4247, paragraph 18, and in Commission v Greece (cited in footnote 15, paragraph 34) and Commission v United Kingdom (cited in footnote 15, paragraph 49).
46 - Judgment in Case C-446/98 Fazenda Pública [2000] ECR I-11435, paragraphs 16 and 17.
47 - The Court refers here to the judgments in Comune di Carpaneto Piacentino, cited in footnote 30, paragraph 15, and in Case C-4/89 Comune di Carpaneto Piacentino and Others [1990] ECR I-1869, paragraph 10.
48 - The Court refers here to the judgments cited in footnote 15 in Commission v United Kingdom (paragraph 50) and Commission v Greece (paragraph 35) as well as other judgments in parallel proceedings.
49 - Judgment in Joined Cases 231/87 and 129/88 Comune di Carpaneto Piacentino and Others, cited in footnote 30, paragraph 13, and the judgment in Fazenda Pública (cited in footnote 46, paragraph 19).
50 - See section 4 of the WTA 1998.
51 - See the judgments in Commission v United Kingdom (cited in footnote 15, paragraph 51) and Commission v Greece (cited in footnote 15, paragraph 36).
52 - Fazenda Pública (cited in footnote 46, paragraph 22).
53 - See the judgment in Case C-4/89 Comune di Carpaneto Piacentino, cited in footnote 47, paragraph 11.
54 - In Fazenda Pública (cited in footnote 46, paragraph 22) the Court did not consider the letting of a parking space in isolation but had regard to the management of public car parks as a whole.
55 - Judgment in Case C-291/92 Armbrecht [1995] ECR I-2775. See specifically on the deduction of input tax on property used in the exercise of public authority, the judgment in Case C-378/02 Waterschap Zeeuws Vlaanderen [2005] ECR I-4685.
56 - Judgment in Case C-349/96 CPP [1999] ECR I-973, paragraph 29. See also the judgment in Case C-41/04 Levob [2005] ECR I-9433, paragraph 20.
57 - See my Opinion delivered on 4 May 2006 in Case C-251/05 Talacre Beach Caravan Sales [2006] ECR I-0000, point 32 et seq.
58 - See the judgments in Case C-415/93 Bosman [1995] ECR I-4921, paragraph 61, and Case C-379/98 PreussenElektra [2001] ECR I-2099, paragraph 39.
59 - Judgment in Comune di Carpaneto Piacentino and Others (cited in footnote 30, paragraph 24). See also the judgment in Case C-430/04 Feuerbestattungsverein Halle [2006] ECR I-0000, paragraph 25.
60 - Judgment in Case C-378/02 Waterschap Zeeuws Vlaanderen [2005] ECR I-4685, paragraph 32.
61 - Judgment in Case C-8/01 Taksatorringen [2003] ECR I-13711.
62 - Taksatorringen judgment (cited in footnote 61, paragraph 63).
63 - According to CEPT ECC Decision (02) 06 the frequency band 2500-2690 MHz is to be made available by 1 January 2008 for IMT-2000 UMTS mobile communications, in addition to the frequencies already licensed for the first 3G services.
64 - The hypothesis put forward by the appellants that a non-taxable person (such as a State body) who is not entitled to deduct input tax might acquire a licence would seem very improbable. If a State body were to use a licence in accordance with its provisions in order to supply telecommunications services it would be liable to tax under the third subparagraph of Article 4(5) of the Sixth Directive in conjunction with Annex D. The argument that deduction of input tax might be precluded if the licences were not used for activities liable to tax is also somewhat hypothetical.
65 - See points 12 and 13 above.
66 - Cited in footnote 46, paragraph 32.
67 - Judgment in Case C-106/89 Marleasing [1990] ECR I-4135, paragraph 8. First mentioned in the judgment in Case 14/83 Von Colson and Kamann [1984] ECR 1891, paragraph 26. See also the judgments in Case C-91/92 Faccini Dori [1994] ECR I-3325, paragraph 26, and in Joined Cases C-397/01 to C-403/01 Pfeiffer and Others [2004] ECR I-8835, paragraph 113.
68 - Judgments in Von Colson and Kamann (cited in footnote 67, paragraph 26), Marleasing (cited in footnote 67, paragraph 8), Faccini Dori (cited in footnote 67, paragraph 26) and Pfeiffer and Others (cited in footnote 67, paragraph 113).
69 - See the judgments cited in footnote 67 (with the exception of Von Colson and Kamann).
70 - Judgment in Case C-201/02 Wells [2004] ECR I-723, paragraph 57.
71 - Judgments in Case 152/84 Marshall [1986] ECR 723, paragraph 48, Marleasing (cited in footnote 67, paragraph 6), Faccini Dori (cited in footnote 67, paragraph 20), Wells (cited in footnote 70, paragraph 57) and Pfeiffer and Others (cited in footnote 67, paragraph 108).
72 - See in this vein the judgments in Case C-131/97 Carbonari and Others [1999] ECR I-1103, paragraphs 49 and 50, and in Pfeiffer and Others (cited in footnote 67, paragraph 115).
73 - Pfeiffer and Others (cited in footnote 67, paragraph 116).
74 - See judgment in Case C-105/03 Pupino [2005] ECR I-5285, paragraph 47. That judgment related to a Framework Decision based on the EU Treaty. However, the quotation also applies to directives under the EC Treaty.