Report for the Hearing delivered in Case C-30/89

I — Summary of the facts

1. Article 2(1) of 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 value-added tax: uniform basis of assessment (Official Journal 1977, L 145, p. 1), hereinafter referred to as the Sixth Directive, provides:

2. Article 2(1) of Council Regulation (EEC, Euratom, ECSC) No 2892/77 of 19 December 1977 implementing in respect of own resources accruing from value-added tax the Decision of 21 April 1970 on the replacement of financial contributions from Member States by the Communities' own resources (Official Journal 1977, L 336, p. 8) provides that

3. Under Article 262, II, 11o of the code general des impôts (General Tax Code) in force in the French Republic

4. The Commission took the view that it was clear from the provisions of the Sixth Directive, in particular Articles 3 and 9, that transport by sea and air, where the places of departure and arrival are situated within French territory, is to be regarded as carried out entirely within France and thus subject to VAT in so far as there is no place of call in another country, regardless of whether or not the transport involves a journey in or above international waters.

5. On 20 October 1986 the French Government replied that the Court (in its judgment of 23 January 1986 in Case 283/84 Trans Tirreno Express v Ufficio Provinciale [1986] ECR 231) simply authorized the Member States, without placing any obligation upon them, to tax the international part of a transport operation carried out from one point to another in the same national territory, so that the Member States had a choice between taxing and not taxing.

6. By letter dated 6 May 1987 the Commission gave notice pursuant to Article 169 of the EEC Treaty to the Government of the French Republic requiring it to submit its observations on the failure of which it complained within a period of two months.

7. The French Government replied on 7 July 1987 that the term place in Article 9(2)(b) of the Sixth Directive had a geographical meaning enabling a service to be localized in order to attribute taxation of an economic activity carried out in that place to the country which exercises its territorial sovereignty there. The high seas and international airspace are not part of the territory of a Member State, so that in the case of transport between mainland France and Corsica the part of the journey carried out in or above international waters does not take place in France.

8. On 7 April 1988 the Commission delivered a reasoned opinion, pursuant to the first paragraph of Article 169 of the EEC Treaty, finding that, by failing to comply with the obligation to calculate unpaid own resources for the years 1980 to 1985 and for subsequent years, by failing to comply with the obligation to send a copy of those calculations to the Commission, by failing to comply with the obligation to make available to the Commission a sum equivalent to the own resources in question, by exempting from value-added tax, in breach of the Sixth Directive on Value-Added Tax, the international part of transpon operations between mainland France and the départements of Corsica, and by failing to comply with the obligation to pay interest for late payment on those sums until the date they are made available to the Commission under Article 11 of Regulation No 2891/77 and with effect from the dates indicated by the Commission, France has failed to fulfil its obligations under the EEC Treaty.

9. In its letter of 22 November 1988 the French Republic maintained its position.

II — Written procedure and conclusions of the parties

1. By application lodged at the Court Registry on 3 February 1989 the Commission brought an action under the second paragraph of Article 169 of the EEC Treaty for a declaration that the French Republic had failed to fulfil its obligations under Articles 2, 3 and 9 of the Sixth Directive, Articles 2 an 9 of Regulation No 2892/77 and Article 11 of Regulation No 2891/77.

2. By order of 21 June 1989 the Kingdom of Spain was allowed to intervene in support of the contentions of the French Republic.

3. 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.

4. The Commission, the applicant, claims that the Court should:

5. The Government of the French Republic, the defendant, contends that the Court should:

6. The Government of the Kingdom of Spain, the intervener, contends that the Court should:

III — Submissions and arguments of the parties

1. The Commission states, that although the French Republic may, pursuant to Article 28(3)(b), continue to exempt from value-added tax the part of transport operations carried out in or above the international waters between mainland France and Corsica, with the result that if it makes use of that power of exemption it must, pursuant to Regulation No 2892/77, compensate the Community budget for the loss of value-added tax resources resulting from the exemption, the Sixth Directive does not, however, allow France to exempt from value-added tax transport operations between its mainland territory and Corsica as far as concerns the part of the journey outside the mainland.

2. The Government of the French Republic takes the view that the exemption from VAT of transport between mainland France and Corsica for the pan of the transpon by sea or air in or above international waters is consistent with the provisions of Article 9(2)(b) of the Sixth Directive. In consequence, it considers that the Commission is not justified in requiring from the French Republic compensation for VAT own resources pursuant to Regulation No 2892/77 for the part of journeys taking place outside mainland territory since the Member States are liable to effect such compensation only in respect of the part of transport exempted under Article 28(3)(b) of the Sixth Directive.

3. The Government of the Kingdom of Spain starts by observing that in the system of the Sixth Directive, Articles 2 and 3 expressly lay down the principle of the territoriality of VAT and that, according to the case-law of the Court (the aforementioned judgments in the Berkholz and Trans Tirreno Express cases and the judgment of 15 March 1989 in Case 51/88 Hamann v Finanzamt Hamburg-Eimsbüttel [1989] ECR 767), the object of Article 9 is the rational delimitation of the spheres of application of the laws of the Member States in relation to VAT in order to determine uniformly the place at which services are effected for tax purposes.

1 Language of the case: French.