Opinion of Mr Advocate General
Mr President,
Members of the Court,
1. The facts and questions
As is often the case, in the present proceedings for a preliminary ruling the facts emerging from the judgment making the reference are useful in throwing light on the questions referred to this Court. I therefore begin with a short summary of the most important facts — including the course of the national proceedings —, to which I shall refer by using letters of the alphabet.
After carrying out a check at the beginning of 1978, however, the Inspector took the view that the Trade Council was not an undertaking and made a subsequent assessment. The Trade Council successfully appealed against that assessment to the Gerechtshof, Amsterdam, whereupon the Staatssecretaris van Financiën [Secretary of State for Finance] appealed in cassation against the Gerechtshofs decision on the ground that the Gerechtshof was not entitled to decide that the Trade Council should be regarded as an undertaking within the meaning of the Wet op de Omzetbelasting [Law on turnover tax] with the right to deduct input tax, inter alia because the Gerechtshofs view conflicted with the Second Council Directive of 11 April 1967 (Directive 67/228/EEC) on the harmonization of legislation of Member States concerning turnover taxes (Official Journal, English Special Edition 1967, p. 16). For further details of the legal arguments which played a rôle in the proceedings before the Netherlands courts, I refer to the judgment making the reference.
In connection with the appeal in cassation, the Hoge Raad of the Netherlands referred the following two questions to the Court of Justice for a preliminary ruling:
2. The relevant provisions of the directive
Before giving further consideration to the questions posed, I consider it useful to review the main provisions of the directive which, in view of the facts of the basic dispute, may be important. At the same time, I shall pay attention to the relationship between those provisions of the directive which the Court is asked to interpret and other provisions thereof which are important for a proper understanding of the former.
As has been stated, the basic dispute concerns the right to deduct, or in this case to receive a refund of, the value added tax which the Trade Council's Amsterdam Office itself had to pay on goods and services supplied to it. That matter is governed by Article 11 of the directive. The first subparagraph of Article 11(2) provides that: Value added tax on goods and services used in nontaxable or exempt transactions shall not be deductible. The second question referred to the Court relates to that subparagraph.
As appears from the abovementioned subparagraph, the right to deduct input tax is dependent on a number of preconditions. In particular, there is no right of deduction — except as provided for in the second subparagraph of Article 11 (2), which is not wholly unimportant in this case — if the goods or services on which the tax is paid are used in nontaxable or exempt transactions. Moreover, it is clear from Article 11 (1) that the right of deduction applies exclusively to those who are themselves taxable persons. The first question referred to the Court concerns the latter condition, that is to say the Trade Council's subjective liability to tax. As appears from the judgment making the reference, in the view of the Staatssecretaris van Financiën, the Trade Council has no subjective liability to tax under the rules contained in the Netherlands Wet op de Omzetbelasting, 1968 (Article 1 in conjunction with Article 7), which limit such liability to undertakings, and it therefore cannot claim the right conferred on undertakings in Articles 2 and 15 of that Law to deduct input tax. The Gerechtshof's wider view of the concept of undertaking is, it is claimed, incompatible with the Second Directive.
For the application of the first subparagraph of Article 11 (2), the following questions must therefore be considered, in so far as is relevant here:
(1). Whether the Trade Council is subjectively a taxable person This is governed by Article 4 of the directive, to which, as has been stated, the first question referred to the Court relates. It is necessary in thai regard to determine when a person independently and habitually engages in transactions pertaining to the activities of producers, traders or persons providing services, whether or not for gain.
(2). Whether the Trade Council is objectively a taxable person This question must not be confused with the question relating to subjective liability to tax. From the judgment making the reference and from the provisions of the Netherlands Law, it seems to me to follow that the whole problem in this case arose because in Articles 2 and 15 the Netherlands Law confers on every undertaking (subjectively a taxable person) the right to deduct input tax and does not also make that right subject to the existence of objective liability to tax as defined in Article 2 of the directive.
(3). Whether there is a basis of assessment and whether to that extent there may be said to be liability to tax within the meaning of the first subparagraph of Article 11(2)
3. The first question
3.1. As has already been stated, the first question referred to the Court asks whether a person who habitually provides sen-ices for traders may be regarded as a taxable person within the meaning of Article 4 of the Second Directive (on the harmonization of turnover taxes) in the event of those services being provided free of charge.
3.2. Since Article 1 of the directive also confers binding force on Annexes A and B, in order to answer that question consideration must be given to the provisions relating to Article 4 contained in Annex A as well as to the wording and purpose of that article. Moreover, regard should also be had to the scheme of the directive as a whole and within that framework particularly to Article 2, previously analysed, which concerns the objective liability to tax.
3.3. So far as the wording and scope of Article 4 are concerned, the crux of the matter is in my opinion the concept of engaging in transactions pertaining to the activities of producers, traders or persons providing services. As appears from the wording of the questions and the exposition of the facts, it is assumed that the Trade Council operates independently and habuually pursues the activities needing to be defined. In my opinion, moreover, the expression whether or not for gain in Article 4 is only explanatory and of secondary importance. That expression is therefore intended merely to clarify that it is not the aim but rather the nature of the activities in question which is relevant
3.4. In mv opinion, on a meaningful interpretation of the wording of Article 4, transactions may be regarded as pertaining to the activities of producers, traders or persons providing services, wherever the following two conditions are met:
3.5. The explanatory provisions relating to Article 4 contained in Point 2 of Annex A confirm that the conclusion thus arrived at is correct. In the first paragraph thereof it is stated that the basic concept referred to in that provision must be interpreted widely so as to cover all economic activities. In the second paragraph it is added that if a Member State intends not to tax certain activities, it should achieve its purpose by means of exemptions rather than by excluding from the scope of the tax persons pursuing such activities. Admittedly, it follows from the fifth paragraph that public corporate bodies, such as that which, according to the national court's findings of fact, is concerned here, are not as a general rule to be considered as taxable persons. However, that applies exclusively in respect of activities which they pursue in their official capacity as official authorities. The latter reservation seems to me to be a provision of Community law, the interpretation of which cannot simply be left to the national court. I propose that the Court of Justice should interpret that provision as meaning that activities pursued by public corporate bodies in their official capacity as official authorities can in no case be regarded as meaning activities which by their nature might also be pursued by independent traders who operate for gain. Such an interpretation is also supported by the second and third subparagraphs of Article 4 (5) of the Sixth Council Directive on turnover taxes (Official Journal 1977, L 145, p. 1). It does not seem to me to be strictly necessary to amplify the conclusion which I have already reached with regard to the interpretation of Article 4, but it is desirable in order to emphasize it.
3.6. As has already been stated, the expression whether or not for gain contained in Article 4 is in my opinion intended only to make it clear that it is not the object but rather the nature of the activities in question which is important. The correctness of that interpretation is in my opinion also clearly demonstrated by Article 4 (1) of the Sixth Directive on turnover taxes, to which the Commission refers in its written observations. Unlike the Commission, however, I consider that that expression in Article 4 of the Second Directive is not in itself decisive with regard to the basic question posed by the Hoge Raad, that is to say whether the fact that the Trade Council provides services free of charge is relevant for purposes of the applicability of Article 4 of the Second Directive. Even transactions which are not for gain will as a rule be provided subject to payment of expenses. However, there is in my opinion another compelling reason why the receipt or non-receipt of payment cannot constitute a supplementary criterion for the applicability of Article 4. As the Commission's representative stated in answer to a question put by the Court during the hearing, economic reality displays every conceivable intermediate form between independent organizations which always receive payment for the services which they provide, those which sometimes do and sometimes do not and those which never receive such payment. It would be difficult for rules on subjective liability to tax to take account of such a variety of intermediate forms. The matter of the receipt of payment belongs rather to the rules on objective liability to tax. Consequently, that matter is dealt with in Article 2 of the Second Directive. That article offers a clear rule for services provided both occasionally and habitually against payment, which, however, implies that tax should be imposed on the habitual provision of services even where payment is required only occasionally. That again presupposes that in such a case a taxable person can be identified. As appears from the facts mentioned under D and on account of the ever-present possibility of changes in this regard in the future, that point may also be of practical importance in the present case. In any event, the systematic argument derived from Article 2 of the directive supports the interpretation of Article 4 of the directive which I have put forward.
3.7. I therefore conclude that the first question submitted should be answered as follows:
4. The second question
If the first question is answered in the affirmative, the second question referred to the Court must also be answered. I would remind the Court that that question reads as follows:
I agree with the Commission that the content alone of this question raises few problems. It is clear from the wording of the first subparagraph of Article 11 (2) that input tax paid by a taxable person on goods and sen-ices which he uses for the provision of nontaxable services may not be taken into account for the purposes of deduction or refund. As has been stated earlier, it follows from Anieles 2 and 8 of the directive that in the case of services which are provided free of charge within the territory of the country there can be no objective liability to tax or basis of assessment and such services are therefore not taxable. Without prejudice to the second subparagraph of Article 11 (2), deduction of input tax is therefore to that extent not possible.
Both the wording of the question and the facts pertaining to the main issue make it clear, however, that the aim of the question was different and may be clarified by the following, somewhat amplified formulation of the question: Does the first subparagraph of Article 11 (2) of the Second Directive of itself, that is to say without national implementing provisions pertaining thereto, prevent a national tax authority from allowing deduction of turnover tax on goods and services which are used by a taxable person within the meaning of the directive for the provision of services free of charge. Seen in this perspective, it is clear that, in putting the question, the Hoge Raad wishes to know whether the tax authority of a Member State can rely upon a provision of the directive to charge taxable persons in a case for which the Member State concerned has made no provision in its implementing provisions. As has been stated earlier, in so far as is important in this case, in the Netherlands Law, in particular in Articles 2 and 15 thereof, the right to deduct input tax is not, or at least not clearly, made dependent upon the existence of objective liability to tax within the meaning of Article 2 of the directive. In particular, subject to the following paragraphs of that article, which are not applicable in this case, Article 15 (1) of the Law seems to confer the right of deduction on any subjectively taxable person (undertaking). That at the same time explains why the concept of undertaking plays such a critical role in the main proceedings in cassation.
The refusal to recognize a taxable person's right to deduct tax paid must in my opinion, in the context of the question as formulated above, be equated with the imposition of liability to taxation. The existing liability to tax is indeed maintained by the refusal of a deduction. In economic terms, that gives rise to a result similar to that of the imposition of liability to tax. The Hoge Raad's question should therefore in my view be answered in the negative. Article 189 of the EEC Treaty clearly provides that a directive is binding (only) upon each Member State to which it is addressed. The unanimous view expressed in the extensive literature which I have consulted on this subject is that it may indeed be inferred from the judgments of the Court that individuals can derive from directives personal rights on which they may rely against the government, but not that directives can directly give rise to obligations for individuals (in this case to repay tax already deducted). From the Court's most recent decisions I can at most infer that an individual may rely on the illegality of a derogation by the national legislature from a directive if it affects him adversely. In that regard, I refer inter alia to paragraph 29 of the judgment of the Court in Case 51/76 Verbond van Nederlandse Ondernemingen v Inspecteur der Invoerrechten en Accijnzen [1977] ECR 113, to paragraphs 9 and 18 of the judgment in Case 38/77 Enka v Inspecteur der Invoerrechten en Accijnzen [1977] ECR 2203, to paragraphs 20 to 22 of the judgment in Case 21/78 Delkvist v Anklagemyndigheden [1978] ECR 2327, to paragraphs 18 to 23 of the judgment in Case 148/78 Pubblico Ministero v Ratti [1979] ECR 1629 and to paragraphs 17 to 25 of the recent judgment of 19 January 1982 in Case 8/81 Ursula Becker v Finanzamt Münster-Innenstadt. In my opinion a similar idea was also by implication the basis of the Court's judgment of 5 February 1981 in Case 154/80 Staatssecretańs van Financiën v Coöperatieve Aardappelenbewaarplaats [1981] ECR 445.
If the Member State itself could, in the event of a deficiency in its legislation, rely on the direct effect of a directive as against an individual, this would in my opinion be equivalent to conferring on the directive in question binding effect as against individuals, in the sense that there could arise directly from directives not only rights as against the Member State bound by the directive but also financial obligations for individuals, in this case obligations to repay tax or the loss by the taxable person of his right of deduction. As I have already stated, neither in Article 189 of the Treaty, nor in the directive in question, nor in the judgments of the Court can I find support for such an interpretation. Judge Pescatore correctly pointed out in his recent and richly-documented article entitled L'effet des directives communautaires, une tentative de démythification (Recueil Dalloz, 1980, p. 171) that in determining the legal effects of directives account must always be taken, on the one hand, of the binding effect for Member States and, on the other, of the need for the adoption of implementing measures by the Member States. The directive cannot therefore make good deficiencies in the implementing measures at the expense of individuals (in this case, taxable persons). Judge Pescatore also concludes at page 176, paragraph 2, of the abovementioned article that individuals can be bound only by national provisions implementing directives and that a directive as such may not be relied upon by a Member State as against individuals. In this particular respect there is an essential difference between it and a regulation, which for example might prohibit certain kinds of national aid in the form of tax concessions. Unlike a directive, such a regulation has general application. Like a decision declaring an aid incompatible with Community law, it can therefore in itself, unlike a directive, impose an obligation on Member States to reclaim benefits obtained which are incompatible with Community law. A directive can impose only an obligation on a Member State to adopt the necessary implementing measures. The obligation to repay, however, then results from the implementing measures.
In my opinion, the second question should therefore be answered as follows:
1 Translated from the Dutch.