OPINION OF MR REISCHL — JOINED CASES 181 AND 229/78 VAN PAASSEN v STAATSSECRETARIS VAN FINANCIËN

Mr President,

Members of the Court,

On 11 April 1967 the Council, on the basis of Articles 99 and 100 of the EEC Treaty, adopted the First and Second Directives on the harmonization of legislation of Member States concerning turnover taxes — Structure and procedures for application of the common system of value-added tax (Directives Nos 67/227/EEC and 67/228/EEC, Official Journal, English Special Edition 1967, p. 14 and p. 16). As a result of those Directives for harmonization, cumulative multi-stage taxes were to be abolished and a common system of value-added tax introduced in all Member States as soon as possible and in any event not later than 1 January 1970, which date was subsequently postponed to 1 January 1972 by the Third Directive on value-added tax.

Pursuant to the Second Directive the Kingdom of the Netherlands adopted on 28 June 1968 a law for the replacement of the existing turnover tax by a system of value-added tax, which entered into force on 1 January 1969 (Wet op de Omzetbelasting 1968, Staatsblad 329).

The parties to the main action which is at the root of the joined cases before the Court disagree as to whether the concept of a taxable undertaking used in that law is compatible with the Second Council Directive on the harmonization of turnover tax, which provides in Article 4:

The expression independently is defined inter alia in Point 2 Regarding Article 4 of Annex A as follows:

Article 16 provides:

Article 7 (1) of the Netherlands Turnover Tax Law 1968, in accordance with the said Article 4, provides:

It appears nevertheless from the preparatory stages of the Turnover Tax Law 1968 that the Netherlands legislature intended to give the expression undertaking no other meaning than that which case-law and commentators gave it under the previous taxation practice. According to the latter the expression could also cover a combination of persons who, although independent from the legal point of view, are organically linked to one another by economic, financial and organizational relationships. This construction of the so-called entity for tax purposes is the subject of the two cases which have led to the references for a preliminary ruling.

The facts of Case 181/78, Ketelhandel P. van Paassen B.V. Staatssecretaris van Financiën, are as follows:

The Besloten Vennootschap met beperkte Aansprakelijkheid Ketelhandel P. van Paassen B.V., plaintiff in the main action, carries on trade in steam and heating boilers. Through its subsidiary S.K.S. Siller en Jamart N.V., whose sole shareholder it is, it held all the shares in N.V. Circula, of Stiens, which until its liquidation in 1972 made boilers and supplied them to the party concerned, invoicing an amount in respect of value-added tax.

In September and October 1971 the plaintiff deducted that value-added tax under Articles 15 and 2 of the Turnover Tax Law 1968 as input tax. N.V. Circula, however, did not, prior to its liquidation, pay over the turnover tax which it included in its account to the plaintiff in 1971.

The Inspecteur der Invoerrechten en Accijnzen, the defendant in the main action, felt obliged to make an additional assessment in respect of the input tax deducted because in his view the two companies were to be considered as a single entity for tax purposes with the result that no turnover tax was payable on the deliveries and to that extent the tax included in Circula's account had been wrongly deducted. In its appeal against that assessment the plaintiff took the view that in 1971 it did not control Circula financially, organizationally and economically in such a way that the two companies could be regarded as one undertaking within the meaning of Article 7 (1) of the Law. After the Inspecteur had reduced the corrective assessment — the amount in question is now only Hfl 44034,01 — but otherwise rejected the appeal, Van Paassen brought the matter before the Tariefcommissie, which by judgment of 1 February 1977 confirmed the Inspecteur's assessment.

The plaintiff appealed on a point of law against that decision to the Hoge Raad of the Netherlands, which by judgment dated 6 September 1978 stayed the proceedings and referred the following four questions under Article 177 of the EEC Treaty for a preliminary ruling on the interpretation of the Second Council Directive on the harmonization of turnover taxes:

The facts of Case 229/78, Minister van Financiën v Denkavit Dienstbetoon B.V. are as follows:

The Besloten Vennootschap Denkavit Dienstbetoon B.V., which carries on trade in cattle, was concerned in 1973 and 1974 mainly with the purchase and sale of calves for Denkavit Nederland B.V. which produces and sells milk for calves from the same address and also engages in the fattening of calves. The shares of both companies are held by the same shareholders. The companies are directed by the same persons.

Cooperation between the two companies takes the form of Denkavit Dienstbetoon B.V. buying calves as commission agent in its own name but for the account of Denkavit Nederland B.V. Again as commission agent it sells to third parties the calves which Denkavit Nederland B.V. has fattened.

Since on the basis of Article 3 (5) of the Turnover Tax Law 1968 it considered itself an independent undertaking in its capacity as commission agent, it paid turnover tax of 4 % on its turnover net of tax in respect of the sale of new-born calves to Denkavit Nederland B.V. and fattened calves to third parties, that is 3,85 % of the gross selling price. On the other hand, on its purchases of new-born calves from third parties and fattened calves from Denkavit Nederland B.V. it deducted, on the basis of Article 15 of the Turnover Tax Law 1968, input tax of 4,25 % of the purchase price. In its turnover tax declaration it therefore claimed repayment of the, in its view, overpaid turnover tax representing the difference between 4,25 % and 3,85 % of the prices at which it had effected the said purchases and sales. This claim was allowed.

The Inspecteur der Invoerrechten en Accijnzen, Amersfoort, took the view that Denkavit Dienstbetoon B.V. was not an undertaking within the meaning of the Turnover Tax Law 1968 and that it could not be regarded as a commission agent within the meaning of Article 3 (5) of that Law and he therefore imposed an additional assessment of Hfl 655707 for the period from 1973 to 1974. By notice dated 24 June 1976 he rejected the objection which Denkavit Dienstbetoon B.V. made against this. Denkavit Dienstbetoon brought an action in respect of that notice before the Gerechtshof, Amsterdam, which by judgment dated 5 October 1977 allowed the claim.

The Minister for Finance, The Hague, appealed on a point of law against that judgment to the Hoge Raad of the Netherlands, which by a judgment dated 11 October 1978 stayed the proceedings and referred to the Court of Justice the same four questions as in Case 181/78 for a preliminary ruling under Article 177 of the EEC Treaty.

I —. Before I deal with the substance of these questions it seems appropriate to make certain preliminary remarks as to the admissibility of the requests for a preliminary ruling.

1. In the main actions the question is apparently whether the concept of a taxable undertaking within the meaning of the Netherlands Turnover Tax Law is compatible with the relevant provisions of the Second Council Directive on value-added tax. The special nature of the cases in point lies in the fact that although the relevant Article 7 of the Netherlands Turnover Tax Law, which was adopted in execution of the said Directive; agrees in its wording with the corresponding Article 4 of the Directive, its practical effect is not the same. According to Netherlands case-law and doctrine, persons who, although legally independent, are linked to one another by economic, financial and organizational relationships are traditionally treated together as one taxable undertaking. This legal concept of the socalled single entity for tax purposes was intended by the Netherlands legislature to be retained in the Turnover Tax Law 1968, without however its being expressly stated in the law, as was done for example in the German turnover tax law, which expressly mentions the corresponding concept of the Organgesellschaft.

2. A further objection, which must also be dealt with as a preliminary matter, is made by the Netherlands Government and by the Government of the Federal Republic of Germany. Both Governments point out that the system of value-added tax particularized in the Second Council Directive had to be introduced only on 1 January 1972 and therefore they doubt whether the Member States were bound before then by the provisions of the Directive. They further point out that in Case 181/78 the measure imposing the taxation, which forms the subject-matter of the main action, occurred in 1971 and had already become definitive when the said directive entered into force.

II —. After those preliminary remarks on admissibility I can now discuss the questions themselves.

1. On the first question the companies take the view that the interpretation of the Netherlands Turnover Tax Law of 1968 should be undertaken not on the basis of the concept of an undertaking contained in the former Netherlands law but only on the basis of the Directive in view of the mandatory nature of the latter. The basic rule, however, apparent from Article 4 of the Second Council Directive is that in principle every undertaking is taxable. They claim that a Member State may introduce the principle of a single entity for tax purposes only if it makes use of the special provision by way of derogation contained in Point 2 of Annex A. From the binding effect of the directive vis-à-vis the Member States and from this combination of rule and exception the companies infer that a Member State may treat persons who at law are independent but who are organically linked to one another by economic, financial or organizational relationships, as a single taxable undertaking only if it intends formally to adopt such a system, if it has entered into the consultations provided for in Article 16, if the Commission has raised no objections to the adoption of the proposed system and if the Member State, finally, has introduced such a system expressly. In the absence of express rules such as those of the German Organgesellschaft it may be concluded that no rule within the meaning of Point 2 of Annex A to the Directive has in fact been adopted. Further, it is said to be apparent from the lack of the prescribed consultations that the adoption in law of a single entity for tax purposes was not even intended.

2. Since the result is that the first question must be answered in the affirmative I do not consider it necessary to deal with the second question.

3. I can therefore turn to answering the third question, relating to the substance and scope of the consultations to be entered into in accordance with Article 16 of the Second Directive on value-added tax.

4. I can therefore now deal with the fourth question, relating to the legal consequences for the effectiveness of the national law of failure to comply with the duty to consult.

III —. I therefore propose that the questions should be answered as follows:

1 Translated from the German.