Report for the Hearing delivered in Case 235/85

I — Facts

1. The Law of 28 June 1968 on turnover tax (Staatsblad [Official Gazette], p. 329), as amended inter alia by the Law of 28 December 1978 (Staatsblad, p. 677) adjusting it to conform to the Sixth Directive on VAT, provides in Article 1 (a) that a tax to be known as turnover tax is to be levied on the provision of services within the Kingdom of the Netherlands by traders acting in the course of their business. Under Article 7 (1), a trader is considered to mean any person who carries on a business independently. For the purposes of the law, the term business is, according to paragraph 2 (a), to include the exercise of a profession. Article 7 (3) provides that the Minister may determine that a body governed by public law which provides, otherwise than as a trader, services which by their nature may also be provided by a trader, is to be regarded as a trader as far as those services are concerned.

2. In the Netherlands the profession of notary is governed by the Wet op het Notarisambt [Law on notaries] (Staatsblad 1842, p. 20) and that of bailiff by the Deurwaardersreglement [Regulation on bailiffs] (Staatsblad 1960, p. 562). Those instruments determine the number of posts available, the conditions for appointment and dismissal, territorial and substantive jurisdiction, rules for the exercise of the profession, scales of charges, accountancy rules and rules concerning disciplinary supervision. On the one hand, notaries and bailiffs exercise functions which are assigned and reserved to them by statute. These are known as official functions [ambtelijke werkzaamheden] and, in the case of notaries, essentially consist in the drawing up of notarial deeds, and, in the case of bailiffs, in the serving of writs and the enforcement of judicial decisions; on the other hand, they perform what are regarded as private functions which include, in the case of notaries, their activities qua tax experts, trustees, and executors of wills, and, in the case of bailiffs, their appearance as attorneys before certain courts.

3. When exercising official functions, notaries and bailiffs are not regarded as traders within the meaning of Article 7 of the 1968 Law and are thus not subject to VAT. That exemption, already contained in earlier legislation and upheld by judgments of the courts, was confirmed by various ministerial directives adopted pursuant to the 1968 Law (namely: Resolution No 27.955 I of 3 November 1980, regarding auctions at which the notary acts as a public official; Resolution No 283-7242 of 17 July 1984, concerning the drawing up of notarial deeds; and Resolution No 28I-18.950 of 15 December 1981, on the services performed by bailiffs). Those resolutions constitute instructions from the Secretary of State for Finance to the inspectors of taxes, but may be relied on in legal proceedings by the taxpayer.

4. The Sixth Council Directive (77/388/EEC) of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes — Common system of bailiff: uniform basis of assessment (Official Journal 1977, L 145, p. 1) defines in Article 2 the scope of VAT, which applies inter alia to the supply of services effected for consideration within the territory of the country by a taxable person acting as such.

5. In its formal notification of 25 October 1983 the Commission took the view that notaries and bailiffs independently engaged in economic activities consisting in the provision of services should be subject to VAT and it called upon the Netherlands Government to submit its observations within one month.

6. In a letter from the Permanent Representative of the Netherlands dated 18 January 1984 the government of the Kingdom of the Netherlands stated that the provision of services by bailiffs and notaries did not amount to an economic activity and that, in any case, they should be covered by the exemption laid down in Article 4 (5) of the Sixth Directive.

7. In its reasoned opinion of 13 December 1984 the Commission claimed that, by introducing and maintaining a VAT exemption for notaries and bailiffs, the Kingdom of the Netherlands had failed to adopt the laws, regulations and administrative provisions needed to comply with the Sixth Directive and called upon the Kingdom of the Netherlands to comply with the opinion within two months. No reply to the reasoned opinion was received.

II — Written procedure and conclusions of the parties

1. By an application lodged at the Court Registry on 30 July 1985 the Commission brought the matter of the alleged failure of the Kingdom of the Netherlands to observe its Treaty obligations before the Court.

2. Upon hearing the report of the Judge-Rapporteur and the views of the Advocate General the Court decided to open the oral procedure without any preparatory inquiry.

3. The Commission claims that the Court should:

4. The Kingdom of the Netherlands, the defendant, contends that the Court should

III — Submissions and arguments of the parties

A— The term economic activity

1. According to the Commission the services provided by notaries and bailiffs indisputably constitute an economic activity within the meaning of Article 4 (2) of the directive. The article does not require the activity to be profit-making or one governed by market forces, but requires it to have a permanent character and to be performed for consideration. That autonomous, specific definition given by the VAT directive must take precedence over the definitions given in other branches of Community law.

2. The Kingdom of the Netherlands explains the special, independent status of the offices of notary and bailiff, the origins of which go back to a period when the role of a legal person governed by public law had hardly developed. An analysis of the functions of notaries and bailiffs and of the statutory organization of their professions shows that their activities consist of official acts carried out by a public body in the public interest. The public character of their activities resides, in the case of notaries, in the authenticity conferred on their documents, and, in the case of bailiffs, in the exercise of coercive powers of a public nature over individuals. It is indisputable that the function of notaries and bailiffs is to protect the public interest.

B — The concept of a body governed by public law

1. The Commission maintains that the concept of transactions in which public authorities engage, within the meaning of Article 4 (5) of the Sixth Directive, is a concept of Community law which must be construed independently. Even if it refers to the public authorities existing in the Member States, those States may not define it in whatever way they wish, by reference to national traditions and peculiarities. The purpose of Article 4 (5) is not to exempt from VAT all acts relating to the exercise of public authority but only those acts related to the fundamental powers and functions of the States and of other collective bodies governed by public law in the fields of government, administration of justice, security and national defence.

2. According to the Kingdom of the Netherlands, the activities reserved in a modern State to the public authorities or bodies governed by public law must be divided into two categories: on the one hand, the economic activities answering the real needs of consumers which, although capable of being conducted by private undertakings, are in the hands of public authorities for political reasons, and, on the other hand, public services whose use is obligatory on grounds of public interest and for which a fixed statutory charge is set. The latter category, which includes the activities of notaries and bailiffs, may not be regarded as an economic activity within the meaning of the Sixth Directive. If, however, this is not the case, the derogation in Article 4 (5) applies.

1 Language of the Case: Dutch.