Report for the Hearing delivered in Case C-185/89

I — Community law applicable

Article 15 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) provides:

In addition Article 16(2) of the same directive provides that:

Article 29 of the directive provides for the setting up of an Advisory Committee on value-added tax consisting of representatives of the Member States and of the Commission.

II — Facts and procedure

1. In November 1983 Velker International Oil Company Ltd NV, Rotterdam, a company incorporated under Antilles law (hereinafter referred to as Velker), sold to Forsythe International BV, The Hague, (hereinafter referred to as Forsythe) two consignments of bunker oil which it had previously acquired from Handelmaatschappij Verhoeven BV, Rotterdam, (hereinafter referred to as Verhoeven). Verhoeven had itself bought the first consignment of oil from Olie Verwerking Amsterdam BV (hereinafter referred to as OVA). The two consignments were supplied to Forsythe directly, the first by OVA on 5 November 1983 and the second by Verhoeven on 11 November 1983. Forsythe stored the consignments of oil in tanks rented from a storage firm and they were then loaded on to seagoing vessels engaged in economic activities other than inshore fishing; the first consignment was loaded on 6, 7 and 8 November 1983 and the second on 17 and 18 November 1983.

2. Such transactions, known as ABC transactions, are governed by Article 3(3) of the Wet op de Omzetbelasting, the Netherlands Law on Turnover Tax. Pursuant to that provision, where there is a chain of several persons undertaking to supply the same goods and in reality physical delivery takes place directly from the first person in the chain to the last, each person in the chain is deemed to have supplied the goods and thus to have effected a taxable transaction.

3. In this case each of the parties to the transactions applied a zero VAT rate, in reliance on the combined provisions of Article 9(2)(b) of the Netherlands Law on Turnover Tax and the first subparagraph of Heading 4(a) of Table II annexed to that law, which allow the supply of goods for the fuelling and provisioning of seagoing vessels engaged in economic activities other than inshore fishing to be zero-rated.

4. However, the Netherlands tax authorities considered that tax exemption was not justified in this case and issued an additional VAT assessment notice on Velker for 1983.

5. Velker brought proceedings before the Gerechtshof (Court of Appeal), The Hague, which, in a judgment of 19 November 1986, annulled the assessment notice, taking the view that the oil supplied by Velker was for the fuelling and provisioning of seagoing vessels within the meaning of the provisions cited above.

6. In its judgment of 24 May 1989, the Hoge Raad explained that the relevant provisions of the Law on Turnover Tax in the version applicable resulted from a Law of 28 December 1978 adopted to implement the Sixth Council Directive. It pointed out that it was not the intention of the Netherlands legislature to implement the final paragraph of Article 15(4) of the Sixth Directive and consequently the term for ... fuelling and provisioning which appears in the national legislation must be understood in the same way as the term which appears in the Community directive.

7. Hence, by judgment of 24 May 1989, the Hoge Raad der Nederlanden decided to suspend proceedings and refer the following questions to the Court for a preliminary ruling:

8. In accordance with Article 20 of the Protocol on the Statute of the Court of Justice of the European Communities, written observations were submitted by the Federal Republic of Germany, represented by Ernst Röder, Regierungsdirektor at the Federal Ministry of Economic Affairs, by the Government of the Kingdom of the Netherlands, represented by B. R. Bot, Secretary-General of the Ministry of Foreign Affairs, by the Government of the Portuguese Republic, represented by L. Fernandes, Director of the European Communities Directorate-General, and A. Correia, Assistant Director-General of the VAT Administration Department, by the Government of the United Kingdom represented by J. A. Gensmantel, Treasury Solicitor, and by the Commission of the European Communities, represented by J. F. Buhl, Legal Adviser, and B. J. Drijber, a member of the Commission's Legal Department, acting as Agents.

9. 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.

10. By decision of 17 January 1990 the Court assigned the case to the Fifth Chamber.

III — Summary of the written observations submitted to the Court

1. The Government of the Federal Republic of Germany states that the exemption provided for in Article 15(4) of the Sixth Directive does not apply solely to supplies made directly to maritime shipping companies. It also applies to supplies made at previous stages in the commercial chain if the condition laid down for the said exemption, namely that the supply is for the fuelling and provisioning of vessels, is clearly satisfied at the time of the supply.

2. The Netherlands Government points out that pursuant to Article 17(3)(b) of the Sixth Directive the exemption provided for in Article 15 is accompanied by retention of the right to a deduction or refund of the turnover tax invoiced at preceding stages by other undertakings.

3. The Portuguese Government begins by pointing out that, in contrast to simple exemption, where the State loses only the benefit of tax at subsequent stages, complete exemption or zero-rating allows the deduction of all tax paid at preceding stages, thus purging the goods of any tax. As is confirmed by the first paragraph of Article 15 of the Sixth Directive, that is the reason why Member States must set up rigorous and well-defined sytems to prevent fraud and diversion.

4. The United Kingdom Government points out that the object of Article 15(4) is to relieve from VAT the export of goods supplied to ships as provisions or fuel. That object is achieved with the minimum of physical control if the final delivery in the supply chain (that is to say, the supply to the departing ship) is relieved of VAT, and all earlier supplies are taxed as domestic supplies. The normal VAT input tax mechanism allows each intermediate supply to be relieved of VAT. That approach requires no retrospective adjusting action to be taken where the final export intention is frustrated or intermediate diversions occur.

5. The Commission of the European Communities considers that the interpretation of Article 15 of the Sixth Directive is closely bound up with interpretation of the term supply of goods which appears in Article 5(1). Supply is there defined as the transfer of the right to dispose of tangible property as owner. That Community definition should be given a broad interpretation. In this case the particular circumstances in which the transactions between Verhoeven, Velker and Forsythe took place should not mean that the sale by Velker to Forsythe of consignments of fuel was not subject to VAT, since Velker had the legal right to dispose of the fuel which had been transferred to it by Verhoeven as owner and it could have disposed of the fuel by reselling it to a final consumer who could not take advantage of the exemption provided for in Article 15(4) of the Sixth Directive. Moreover the fact that a taxable person is entitled to dispose of goods as owner is not necessarily linked to physical possession of the goods as is confirmed by the Court's judgment of 8 March 1988 in Case 165/86 Leesportefeuille Intiem [1988] ECR 1471.

1 Language of the case: Dutch.