JUDGMENT OF 1.2. 1977 — CASE 51/76 NEDERLANDSE ONDERNEMINGEN v INSPECTEUR DER INVOERRECHTEN EN ACCIJNZEN

In Case 51/76 Reference to the Court under Article 177 of the EEC Treaty by the Hoge Raad (Supreme Court) of the Netherlands for a preliminary ruling in the action pending before that court between

THE COURT composed of: H. Kutscher, President, A.M. Donner and P. Pescatore, Presidents of Chambers, J. Mertens de Wilmars, M. Sørensen, Lord Mackenzie Stuart, A. O'Keeffe, G. Bosco and A. Touffait, Judges, Advocate-General: H. Mayras Registrar: A. Van Houtte

gives the following

JUDGMENT

Facts

I — Facts and procedure

II — Written observations lodged with the Court

Law

The first two questions

The third question

Costs

I —. Facts and procedure

1. Article 11 of the Second Council Directive on VAT provides:

2. The Netherlands adopted VAT by the Wet op de omzetbelasting (Law on turnover tax) of 28 June 1968 (Staatsblad 329) with effect from 1 January 1969.

3. The Federation of Undertakings of the Netherlands, the plaintiff in the main action, acquired during the early months of the year 1972 a Rotex printer and reply cards for members' meetings. In its tax return for February to April 1972 it deducted the full amount of the turnover tax which had been invoiced to it on that purchase.

4. The plaintiff in the main action contested the corrective assessment made by the defendant in the main action before the Tariefcommissie. One of its arguments was that the right to make a deduction laid down by Article 45 (1) of the Law of 1968 is contrary to the principle of the right to make a deduction laid down by Article 11 (1) of the Second Directive mentioned above, in so far as the concept of business assets of an undertaking is wider than that of capital goods contained in the third indent of Article 17 of the Directive.

5. The plaintiff in the main action appealed to the Hoge Raad on points of law against the decision of the Tariefcommissie.

6. The order of the Hoge Raad was entered in the Court Registry on 18 June 1976.

II —. Written observations lodged with the Court

1. The Federation of Undertakings of the Netherlands points out that doubts have been expressed several times in the Parliament of the Netherlands as to the correctness of the opinion that the restriction of the right to make deductions for business assets, set out in Article 45 of the Netherlands Law of 1968 on VAT is compatible with the provisions of the Second Directive.

2. Since the plaintiff in the main action answers the first question in the affirmative, it has no observations to submit on the second question referred by the Hoge Raad.

3. As for the third question referred by the Hoge Raad, the plaintiff in the main action is of the opinion that this question should receive an answer in the affirmative subject to the reservation that taking into account the provisions of Article 11 (2) and (4) of the Second Directive, there is no right to unrestricted deduction when the taxable person has been assessed to turnover tax on goods and services used in non-taxable or exempt transactions, or for the private needs of the taxable person or of his staff.

4. The Belgian Government suggests that the Court should give a negative answer to the first question referred by the Hoge Raad, because an answer in the affirmative would require the Member States to define the expression capital goods exclusively with reference to laws in force and accounting practices within the national system.

5. As for the second question put by the Hoge Raad, the Belgian Government is of the opinion that for the purposes of the third indent of the first paragraph of Article 17 capital goods may be considered to be:

6. The Belgian Government suggests that the Court should answer the third question put by the Hoge Raad by saying that Article 11 of the Second Directive cannot have direct effect.

7. The Government of the Netherlands points out that according to a number of authoritative writers on business economics, the expression to invest does not necessarily presuppose that costs are spread over several years.

8. In the opinion of the Commission, the fact that the third subparagraph of Article 11 (3) of the Second Directive provides that as regards a certain category of goods the pro rata figure must be spread over a period of five years means that the expression capital goods used in that article obviously concerns durable goods. The fourth indent of Article 17 makes it abundantly clear that the concept of capital goods is tied in with the concept of goods eligible for writing off, which is the same concept as is found in the third paragraph of Article 11 (3).

9. In the light of this answer, the Commission is of the opinion that the second question put by the Hoge Raad ceases to be relevant.

10. As for the third question put by the Hoge Raad, the Commission argues that the wording of the question is such that it refers exclusively to Article 11 (1) (a) of the Second Directive given that ex hypothesicapital goods are not involved and that the goods in question are to be used for the purposes of the undertaking.

1. By order of 9 June 1976, which reached the Court on the 18th of that month, the Hoge Raad (Supreme Court) of the Netherlands has referred for a preliminary ruling under Article 177 of the EEC Treaty three questions on the interpretation of certain provisions of the Second Council Directive of 11 April 1967 on the harmonization of legislation of Member States concerning turnover taxes — Structure and procedures for application of the common system of value-added tax (OJ English Special Edition 1967, p. 16).

2. Those questions have been referred in respect of a dispute in which a Federation of undertakings, which is subject to Netherlands legislation on turnover tax, is contesting a decision adopted by the Inspector of Customs and Excise which seeks to limit the right to deduct turnover tax on certain objects acquired by the Federation and used by it as office supplies.

3. Article 11 (1) of the directive provides that where goods and services are used for the purposes of his undertaking, the taxable person shall be authorized to deduct from the tax for which he is liable, inter alia, value-added tax invoiced to him in respect of goods supplied to him or in respect of services rendered to him.

4. That deduction system, however, is subject to exceptions laid down by other provisions of the directive which allow the Member States to make exceptions to it in specifically defined cases and within clearly stated limits.

5. Those exceptions include certain provisions concerning capital goods, particularly Article 17, which is in issue in this case.

6. The third indent of the first paragraph of that article provides that the Member States may exclude in whole or in part, during a certain transitional period, capital goods from the deduction system provided for in Article 11.

7. In application of that relieving provision, the Netherlands Law on turnover tax lays down transitional provisions whereby, for the year 1972, only 67 % of the tax on goods intended to be used by the trader as business assets may be deducted.

8. The Federation claims that the latter expression, interpreted by the Netherlands tax authorities, has a wider meaning than the expression capital goods used by the directive, and that the exception to the right to make deduction has thus been extended too widely, with the result that the Federation has had to bear tax not authorized by the directive.

9. By the first and second questions, the Hoge Raad asks, in effect, what is the correct interpretation of the expression capital goods appearing in the third indent of the first paragraph of Article 17 of the directive.

10. It should be noted, in the first place, that the expression at issue forms part of a provision of Community law which does not refer to the law of the Member States for the determining of its meaning and its scope.

11. It follows that the interpretation, in general terms, of the expression cannot be left to the discretion of each Member State.

12. The ordinary meaning of the expression and its function in the context of the provisions of the Second Directive indicate that it covers goods used for the purposes of some business activity and distinguishable by their durable nature and their value and such that the acquisition costs not normally treated as current expenditure but written off over several years.

13. In fact, the special system reserved for capital goods by the directive, which includes exceptions to the principle of immediate deduction, is explained and justified by the durable use of those goods and the attendant writing off of their acquisition costs.

14. However, the accounting methods and the procedures for writing off adopted by each particular undertaking in relation to its own financial interests cannot provide the decisive criterion for the definition of the concept at issue, given that the said concept has its place in a taxation system which, in principle, is based on the equality of undertakings before the revenue law.

15. Conversely, the decisive elements are the durability of use and the practices for writing off, as normally taken into consideration for the management of the undertaking in the sphere concerned.

16. In this respect, the Second Directive does not contain explicit guidance for defining uniformly and precisely the requirements which must be satisfied concerning durability and value, together with the rules applicable for writing off, in order that an object may be classified as capital goods for the purposes of the provisions at issue.

17. The Member States therefore have a certain margin of discretion as regards those requirements, provided that they pay due regard to the existence of an essential difference between capital goods and the other goods used in the management and day to day running of undertakings.

18. Therefore the appropriate answers to the first two question are

19. The third question referred by the Hoge Raad is worded as follows:

20. This question raises the general problem of the legal nature of the provisions of a directive adopted under Article 189 of the Treaty.

21. On this, the Court has already said, most recently in its judgment of 4 December 1974 in Case 41/74 ([1974] ECR 1337 at p. 1348) that if, by virtue of the provisions of Article 189, regulations are directly applicable and, consequently, may by their very nature have direct effects, it does not follow from this that other categories of acts mentioned in that article can never have similar effects.

22. It would be incompatible with the binding effect attributed to a directive by Article 189 to exclude, in principle, the possibility that the obligation which it imposes may be invoked by those concerned.

23. In particular, where the Community authorities have, by directive, imposed on Member States the obligation to pursue a particular course of conduct, the useful effect of such an act would be weakened if individuals were prevented from relying on it before their national courts and if the latter were prevented from taking it into consideration as an element of Community law.

24. This is especially so when the individual invokes a provision of a directive before a national court in order that the latter shall rule whether the competent national authorities, in exercising the choice which is left to them as to the form and the methods for implementing the directive, have kept within the limits as to their discretion set out in the directive.

25. Paragraph (1) of Article 11 of the Second Directive on value-added tax states in explicit and precise terms the principle of the deduction of sums invoiced as value-added tax in respect of goods supplied to the taxable person, in so far as those goods are used for the purposes of his undertaking.

26. That basic principle, however, is subject to certain derogations and exceptions which the Member States may determine by virtue of other provisions of the directive.

27. When the nature of the provisions concerned is taken into account, the fact of having or of not having exercised the power to make a derogation or an exception is a matter for the discretion of the legislative or administrative authorities of the Member State in question and cannot, therefore be subject to legal review on the basis of the provisions of the directive.

28. The position is the same if the matter in dispute depends on one of the provisions which, either in express terms, or through the indefinite nature of the concepts used, leave the legislative or administrative authorities of the Member States a margin of discretion concerning the material contents of the exceptions or derogations authorized.

29. Conversely, it is the duty of the national court before which the directive is invoked to determine whether the disputed national measure falls outside the margin of the discretion of the Member States and cannot therefore be considered as a legitimate exception to or derogation from the principle of immediate deduction laid down by paragraph (1) of Article 11, and to take this into account in giving effect to the taxable person's claim.

30. Therefore the appropriate answer to the third question is that, in the case of goods purchased in 1972 and intended to be used for the purposes of the undertaking which do not belong to the category of capital goods within the meaning of Article 17 of the directive, it is the duty of the national court before which the rule as to immediate deduction set out in Article 11 of the directive is invoked to take those facts into account in so far as a national implementing measure falls outside the limits of the margin of the discretion left to the Member States.

31. The costs incurred by the Government of the Federal Republic of Germany, the Government of the Kingdom of Belgium, the Government of the Kingdom of the Netherlands and the Commission of the European Communities, which have submitted observations to the Court, are not recoverable.

32. As these proceedings are, in so far as the parties to the main action are concerned, a step in the action pending before the national court, the decision on costs is a matter for that court.

On those grounds, THE COURT in answer to the questions referred to it by the Hoge Raad of the Netherlands by order of 9 June 1976, hereby rules:

1 The words capital goods appearing in the third indent of Article 17 of the Second Council Directive of 11 April 1967, on the harmonization of legislation of Member States concerning turnover taxes, mean goods used for the purposes of some business activity and distinguishable by their durable nature and their value and such that the acquisition costs are not normally treated as current expenditure, but are written off over several years.

2 The Member States have a certain margin of discretion as regards the requirements which must be satisfied concerning the durability and value of the goods, together with the rules applicable for writing off, provided that they pay due regard to the existence of an essential difference between capital goods and the other goods used in the management and in the day to day running of undertakings.

3 In the case of goods purchased in 1972 and intended to be used for the purposes of the undertaking which do not belong to the category of capital goods within the meaning of Article 17 of the directive, it is the duty of the national court before which the rule as to immediate deduction set out in Article 11 of the directive is invoked to take those facts into account in so far as a national implementing measure falls outside the limits of the margin of the discretion left to the Member States.