Repon for the Hearing in Case C-120/88

I — Facts and procedure

1. Legal framework

(a) Relevant Community law

The first paragraph of Article 95 of the EEC Treaty provides that:

That provision imposes an absolute prohibition which is of direct effect and is designed to ensure the complete neutrality of internal taxation as regards competition between domestic products and imported products.

In addition, Article 2 of 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 value added tax: uniform basis of assessment (Official Journal 1977 L 145, p. 1) provides that the importation of goods shall be subject to VAT, whether carried out by a taxable or a nontaxable person.

Asked whether the levying of VAT upon the importation of goods from another Member State which were supplied by a private individual was compatible with Article 95 of the EEC Treaty in cases where no VAT was levied on the supply of goods between private individuals within the Member State of importation, the Court stated, in its judgment in the first Gaston Schul case (Case 15/81 [1982] ECR 1409), that

In its judgment in the Gaston Schul II case (Case 47/84 [1985] ECR 1491), a case concerning the method by which the amount of VAT due at the time of importation was to be determined, the Court ruled that:

The Court subsequently pointed out, in its judgment in Case 39/85 (Bergeres-Becque [1986] ECR 259), that the principles formulated in the first and second Gaston Schul cases were equally applicable where the transaction giving rise to the importation was not effected for valuable consideration.

Furthermore, the Court stated in its judgment in Case 299/86 (Drexl [1988] ECR 1213) that those principles also applied in the case of the importation by a private individual of goods from another Member State where the conditions for entitlement to a tax exemption in the Member State of importation were not satisfied.

(b) Proposals for a directive

On 23 July 1984, the Commission submitted to the Council a proposal for a Sixteenth Directive on the harmonization of the laws of the Member States relating to turnover taxes — Common system of value added tax: common scheme for certain goods on which value added tax has been finally paid and which are imported by a final consumer in one Member State from another Member State (Official Journal 1984 C 226, p. 2; hereinafter referred to as the original proposal for a Sixteenth VAT Directive). The system which that proposal sought to introduce in order to avoid double taxation involved in principle a refund of tax on exportation and the charging of tax on importation, provided that a number of conditions concerning the value of the goods and the period between exportation and final supply were satisfied.

The original proposal for a Sixteenth VAT Directive was subsequently amended to take account of the opinion of the European Parliament. On 25 March 1986 the Commission submitted to the Council the amended proposal for a Sixteenth Council Directive on the harmonization of the laws of the Member States relating to turnover taxes — Common system of value added tax: common scheme for certain goods on which value added tax has been finally paid and which are imported by a final consumer in one Member State from another Member State (Official Journal 1986 C 96, p. 5; hereinafter referred to as the amended proposal for a Sixteenth VAT Directive). The amended proposal seeks to establish a system based on exemption from VAT in the Member State of importation, subject to a number of conditions concerning the value or nature of the goods or the period between exportation and final supply, or both. A method for refunding tax on exportation and charging tax on importation would be applied to goods not exempted at the time of importation. This proposal for a directive has not yet been adopted.

2. The pre-litigation stage

The Commission considered that the Italian legislation did not contain the provisions necessary to comply with Article 95, as interpreted by the Court, and accordingly, by letter of 8 October 1985, it invited the Italian Republic to submit its observations within two months, in accordance with the procedure laid down in the first paragraph of Article 169 of the Treaty.

In that letter, the Commission pointed out that the basic principle of the aforementioned judgments is that goods coming from another Member State and imported by a nontaxable person suffer double taxation in breach of Article 95 of the EEC Treaty if the Member State of importation taxes those goods, which have already borne VAT in the Member State of exportation, without taking into consideration the VAT which is still contained in their value at the time of importation. To be more precise, there is double taxation in breach of Article 95 of the Treaty in so far as the same transaction, within the country of importation, is not subject to taxation, and it has not been possible to obtain a reimbursement of the VAT paid in the country of exportation.

Since the Italian Government did not reply to that letter, on 3 February 1987 the Commission delivered a reasoned opinion.

The Italian Government replied by letter of 15 May 1987 that it was planning to introduce the aforementioned principles set out in the Court's judgments by way of consolidating legislation which was then in course of preparation; it also expressed its wish that the Commission proposal for a Sixteenth VAT Directive should be adopted at the earliest opportunity.

The Commission considered that the reference to the proposal for a directive was not relevant and for that reason it has brought the present action pursuant to Article 169 of the Treaty.

3. Procedure

The Commission's application was lodged at the Court Registry on 19 April 1988.

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.

II — Forms of order sought by the parties

The Commission claims that the Court should:

The Italian Republic contends that the Court should:

III — Submissions and arguments of the parties

The Commission argues that the system actually applied by the Italian authorities to determine the VAT payable when a private individual imports goods purchased in another Member State is not consistent with the principle of tax equality established by Article 95. The defendant has not introduced provisions to allow nontaxable persons to deduct from the VAT due on importation that proportion of the VAT paid in the Member State of exportation which is still contained in the value of the goods at the time of importation.

The existence of a proposal for a Sixteenth Directive does not in any way release Member States from their obligation to comply with Article 95.

Finally, the Commission points out that the Court has consistently held that Member States are required to introduce legal provisions which are clear in meaning and do not leave persons subject to them in uncertainty as to the extent of their rights.

The Italian Republic contends that the Commission has not cited any concrete instance of an infringement of Article 95. The charge is, as it were, the purely formal one of failure to enact the necessary provisions.

According to the Italian Republic, the Commission is implicitly denying that the existence of the proposal for a Sixteenth VAT Directive has any relevance in law. That directive, it claims, ought to be adopted without delay in order to allow for the adoption of uniform procedures and rules of application. In this area, the acceptance of a general principle prohibiting double taxation is not sufficient; rules are required which make it possible to ensure the establishment of detailed procedures and rules of application.

Finally, no Member State can be held responsible for the fact that Community provisions, despite being well developed in the area of VAT, still leave citizens of Member States in uncertainty as to the extent of their rights.

The Commission points out in reply, inter alia, that the failure on the part of the Italian authorities to apply the principles laid down in the Schul cases has been confirmed by recent events.

Following those judgments, the Commission considered it appropriate to submit to the Council a proposal for a directive designed to eliminate double taxation. The Commission proposed, in its amended draft for a Sixteenth Directive, that exemption of the final consumer from VAT in the Member State of importation should be the general rule where certain criteria relating to the value of the goods or the date of the first delivery are met and that, in other situations, a system resembling that applied to taxable persons under the Sixth VAT Directive should be set up for remission of tax on exportation and imposition of tax on importation.

It has not yet proved possible to achieve agreement within the Council on three fundamental problems: the principle of a directive on this subject, the detailed rules proposed by the Commission and the inclusion of exemptions within the scope of the directive.

However, the implementation of the harmonization programme envisaged by Article 99 of the Treaty cannot constitute a prerequisite for the application of Article 95. Regardless of differences between the tax systems of the Member States, Article 95 envisages the elimination, prior to any harmonization, of national taxation practices which are liable to result in discrimination against imported products or in protection of certain domestic products.

IV — Course of the procedure

The hearing took place on 22 February 1990. Following that hearing, the Court requested the parties to reply in writing to a number of questions. Each party was then requested to submit written observations on the replies given by the other party to the Court's questions. The Court decided on 10 May 1990 to reopen the proceedings in order to enable each party to submit orally its observations on the replies to the questions put and to answer any further questions which the Court might have.

In addition, the Commission was given leave on 19 June 1990 to submit documents concerning double imposition of VAT on the importation into Italy by nontaxable persons of goods on which VAT had been definitively charged in the Member State of exportation. The Italian Government was requested to comment in writing on the documents submitted by the Commission.

V — Replies to the questions put by the Court

1. The Court requested the Commission to provide details of the Italian legislation governing the importation by nontaxable persons of goods on which VAT has been definitively charged in the Member State of exportation. In addition, the Court asked the Italian Republic to produce the legislative text which it was intending to introduce into Italian law.

2. The Court requested the Commission to state whether it regarded the omission on the part of the Italian authorities to apply the legal principles laid down in Schul or the absence of legislative provisions incorporating those principles into Italian law as representing a failure by the Italian Republic to fulfil its obligations under Community law.

3. The Court also requested the Commission to state the reasons in law why Member States whose domestic legislation gives effect to Article 2 of the Sixth VAT Directive should be required to adopt express legal provisions in order to ensure compliance with Article 95 of the Treaty, in view of the fact that the judgment in the first Gaston Schul case affirmed the validity of Article 2 of the Sixth VAT Directive by interpreting it in accordance with Article 95 of the Treaty.

VI — Documents submitted by the Commission

The Commission submitted to the Court a number of documents relating to a dispute between an Italian national and the Italian customs authorities over the imposition of VAT on the importation into Italy of a motor vehicle which that individual had purchased in France.

Those documents show that the Italian national in question had imported a vehicle into Italy with the intention of giving it to his children a few days after purchasing it in France. When he purchased the vehicle, he paid VAT at a rate of 25%. When importing the vehicle into Italy, he once again paid VAT at a rate of 19%. Acting on advice given by the French authorities, he contacted the Italian customs authorities to obtain reimbursement of the VAT paid at the time of importation.

In reply to that request, the head of the relevant Italian customs district states that the Commission had recommended that all tax levied on the importation of an item from another Member State should take account of the VAT already paid in respect of that item. However, he points out that the central authorities apparently did not follow that recommendation when adopting the formal provisions to be applied for that purpose and that the judgments of the Court in the first and second Gaston Schul cases, on which the Commission's recommendation is based, do not appear to be directly applicable by analogy to the present case. He therefore believes that the conditions for granting an exemption from VAT on importation have not been satisfied, although he does point out that the applicant may complain to the Commission on the ground that there has been a failure to apply its recommendation.

The Italian Republic did not comment on the documents submitted by the Commission.

1 Language of the case: Italian.

2 See the judgments of the Court of 27 February 1980 in Case 168/78 Commission v France [1980] ECR 347, in Case 169/78 Commission v Italy [1980] ECR 385, and in Case 171/78 Commissions Denmark [1980] ECR 447.

3 Proposal for a Sixteenth Council Directive on the harmonization of the laws of the Member Sutes relating to turnover taxes — Common system of value added tax : common scheme for certain goods on which value added tax has been finally paid and which are imported by a final consumer in one Member State from another Member State (OJ 1984 C 226, p. 2 (original proposal), and OJ 1986 C 96, p. 5 (amended proposal)).

4 See, in particular, the judgment in Case 171/78 Commission v Denmark, cited above.

5 See, in particular, the judgment in Case 168/85 Commissioni Italy [1986] ECR 2945.