Report for the Hearing in Case C-284/90
I — Facts
1. On 20 March 1990 the Commission forwarded to the Council pursuant to Article 15 of the Financial Regulation of 21 December 1977 applicable to the general budget of the European Communities (Official Journal 1977 L 356, p. 1), last amended by Council Regulation (Euratom, ECSC, EEC) No 610/90 of 13 March 1990 (Official Journal 1990 L 70, p. 1, hereinafter referred to as the Financial Regulation), preliminary draft amending and supplementary budget No 2 for the financial year 1990 (hereinafter referred to as preliminary draft ASB No 90/2). It provided for a supplementary entry for the balance of the financial year 1989 and included an adaptation of the correction of the budgetary imbalances in favour of the United Kingdom and also an adjustment of rebates to Spain and Portugal.
2. The Community was at the time faced with surplus revenue over actual expenditure as a result of appreciable savings made in 1989. Such was the extent of that surplus that there was no need to call up the fourth resource, namely the revenue from the application of the GNP rate mentioned in Article 2(1 )(d) of Council Decision 88/376/EEC, Euratom, of 24 June 1988 on the system of the Communities' own resources (Official Journal 1988 L 185, p. 24, hereinafter referred to as the Own Resources Decision).
3. In order to deal with the surplus the Commission proposed to take into account in the general budget for 1990 only the portion of the budgetary balance for 1989 that would be required to make it unnecessary to call up the fourth (GNP) resource, apart from the amount for the correction in favour of the United Kingdom, and to retain the call-up of VAT at the uniform rate calculated in accordance with the detailed rules laid down in Article 2(4) of the Own Resources Decision. In the explanatory statement for preliminary draft ASB No 90/2 the Commission indicated that the remaining amount would be entered, first, in a third amending and supplementary budget for the financial year 1990 and, secondly, in the preliminary draft budget for the financial year 1991. While recognizing that the entry of a portion of the balance in the 1991 budget did not comply with the literal terms of Article 32 of the Financial Regulation, which provides that the balance from each financial year is to be entered in the budget for the following financial year as revenue or expenditure, the Commission maintained that it would be contrary to the Own Resources Decision to fix a lower uniform rate of VAT in order to balance the budget.
4. In its draft amending and supplementary budget No 2 for the financial year 1990 (hereinafter referred to as draft ASB No 90/2), the Council decided not to follow the path recommended by the Commission. Not wishing to depart from Article 7 of the Own Resources Decision, which provides that any surplus of the Communities' revenue over total actual expenditure during a financial year is to be carried over to the following financial year, or from Article 32 of the Financial Regulation, the Council entered the entire balance for the financial year 1989 in the budget for the financial year 1990; furthermore, it decided not to call up the own resources based on the GNP in relation to the financial compensation for the United Kingdom and reduced the amount of own resources accruing from VAT in order to balance the budget for the financial year 1990 in accordance with Article 203(10) of the EEC Treaty.
5. By letter of 14 May 1990, the Council forwarded draft ASB No 90/2 to the European Parliament. When it was placed before the Parliament, on 11 June 1990, it was accompanied by two letters of amendment from the Commission, approved by the Council.
6. At its meeting of 25 and 26 June 1990 the Council, acting pursuant to Article 203(5) of the Treaty, expressly rejected the abovementioned amendment No 2, declaring that it was not an amendment within the meaning of Article 203 of the Treaty, since amendments within the meaning of that article concerned only non-compulsory expenditure and not the statement of revenue. The Council confirmed the estimate of revenue appearing in draft ASB No 90/2, as corrected by the letters of amendment.
II — Written procedure and forms of order sought by the parties
7. The Council's application was lodged at the Court Registry on 17 September 1990.
III — Summary of the pleas and arguments of the parties
Admissibility
8. In its statement in defence, the Parliament claimed that the Council's first and third heads of claim were inadmissible.
9. With regard to the application for the annulment of ASB No 90/2, adopted by the Parliament on 11 July 1990, the Parliament claims that it follows from the operative part of the judgment in Case 34/86 Council v Parliament [(1986] ECR 2155) that only the act of the President of the Parliament of 11 July 1990 whereby he declared that the amending and supplementary budget was finally adopted may be the subject-matter of an annulment. Accordingly, the first head of the Council's claim must be declared inadmissible.
10. With regard to the claim concerning the effects of the annulments sought by the Council, the Parliament observes that the Council has reproduced, in essence, what is set out in paragraph 2 of the operative part of the judgment in Council v Parliament, cited above. The facts of that case differ essentially from those in this case. In this case the Council itself indicated in its application that the closure of the financial year 1990 would take place before the Court had reached its decision. Consequently, the annulment could concern only a budget implemented in its entirety. According to the Parliament, the Council is asking the Court, on the one hand, to annul ASB No 90/2 and, on the other hand, to uphold all the acts authorizing revenue and expenditure which may have been taken in application of that budget. It is impossible to ask the Court for one thing and also its opposite. If the Council's application were to succeed, it would be impossible to modify in any way the legal status of ASB No 90/2. In the Parliament's view such an application is inadmissible because the Council has no interest in pursuing it.
11. The Council disputes the Parliament's arguments. It claims that, in an application for annulment, it is, in the first place, the adoption of the budgetary act that must be challenged, as also must be the implementation of the act of the President of the Parliament whereby he declares that the adoption is final. Those two acts are interdependent to such an extent that it would be imprudent to proceed against the second without calling in question the first and the reasons on which it is based. According to the Council, it is the deliberations of the Parliament of 11 July 1990 and the amendments to draft ASB No 90/2 voted on that occasion that the Court must declare irregular, so that ASB No 90/2 may be declared invalid and, in consequence thereof, the act of the President of the Parliament of 11 July 1990 may be annulled.
12. As for the request that the annulment of ASB No 90/2 should not affect the validity of payments or commitments or operations relating to the call-up and levy of own resources before the end of the 1990 financial year, the Council points out that its request seeks to circumscribe and limit the legal consequences and effects of a declaration that ASB No 90/2 is void. It denies that the ASB would have no effect at all beyond its closure and sets out a number of budgetary entries relating both to revenue and to expenditure in order to show that it has produced legal effects even after its closure. The Council suggests that in view of the requirements of legal certainty the Court might confine itself to the annulment of certain amendments made by the Parliament with regard to the estimate of revenue for 1990 in ASB No 90/2, as adopted by it, the expenditure part not being invalidated. In accordance with the rules and principles by which the budget is governed it will then be for the budgetary authority to examine carefully and to adopt without delay the appropriate measures to take account of the annulment.
13. In its rejoinder, the Parliament claims that the Council's argument that the Parliament's deliberations may, as such, be challenged is clearly contrary to the Court's case-law. It refers to the judgment in Council v Parliament, cited above, where the Court held that it is the act of the President that may be challenged if the President declares that the budget has been adopted, even though the conditions of the fifth subparagraph of Article 203(9) are not satisfied. In this case, too, the Council has criticized the Parliament for not complying with the fifth subparagraph of Article 203(9) of the Treaty. It follows that it is only the act of the President of 11 July 1990 that may be challenged.
14. With regard to the request that the Court indicate that the annulment of the acts of the Parliament and its President does not affect the validity of the transactions carried out before the end of the financial year 1990, the Parliament raises two further objections.
15. First, the Parliament considers that the Council, in its reply, has formulated a new claim with regard to the effects of annulment: it has asked the Court to indicate that the annulment of both the acts of the Parliament and its President does not affect the validity of measures duly taken in implementation of ASB No 2/90, the institutions being obliged to adopt without delay the appropriate budgetary provisions to take account of the annulment. According to the Parliament, it follows from Article 38 of the Rules of Procedure and from a consistent line of decisions that the applicant may not alter the subject-matter of the action and the form of order sought in the course of the proceedings.
16. Secondly, the Parliament considers that the Court may not annul amendments adopted by the Parliament, which are not acts susceptible of challenge and which, furthermore, have not been challenged as such by the applicant. Partial annulment is impossible, since the only act capable of being challenged is the act of the President of the Parliament. The annulment of that act would automatically entail the annulment of the budget in its entirety (see the judgment in Council v Parliament, cited above, paragraph 42).
17. The Commission makes no comment on the questions of admissibility raised by the Parliament.
Substance
18. The Council first of all observes that it was necessary to implement ASB No 90/2 provisionally until such time as it was declared invalid by the Court. The Council was required to enter in the draft budget for 1991 a portion of the surplus revenue for the financial year 1989. However, that outcome may not be taken as approval of the Parliament's position and that entry may not in any event prejudice the Council's position vis-à-vis that amending and supplementary budget.
19. The Council relies on two submissions in support of its application. These are, first, that ASB No 90/2 is irregular in relation to Article 7 of the Own Resources Decision and Article 32 of the Financial Regulation and, secondly, that it is irregular in relation to the Parliament's powers.
20. According to the first plea put forward by the Council, the fundamental principle of budgetary law, laid down in Article 199, the second paragraph of Article 202 and Article 203(10) of the Treaty, is the annual nature of the budget. Article 7 of the Own Resources Decision and Article 32 of the Financial Regulation constitute a derogation or an exception from that principle. The derogation from that fundamental principle must be confined within strict limits which are not themselves subject to exceptions.
21. According to the Council, it follows from the above provisions that the budget for a given financial year must include in the revenue or expenditure the surplus or deficit balance from the preceding financial year. It is thus unacceptable for a portion of the surplus revenue for the financial year 1989 to have been entered, not in 1990, but in the financial year 1991. The Council concludes that the Parliament did not comply with the mandatory obligation laid down in Articles 7 and 32 when it finally adopted ASB No 90/2 and that it thus infringed an essential procedural requirement within the meaning of the first paragraph of Article 173 of the Treaty.
22. In its second plea, the Council maintains that, under Community law as it stands at present, the Parliament has no power to modify, rectify or amend the statement of revenue in the Community budget. The Parliament has made a number of attempts to be recognized as having the final word, or at the very least the right to intervene, in revenue matters. According to the Council, the aim of those attempts by the Parliament to assert its powers in revenue matters is to express a political determination or attitude rather than to demonstrate a legal conviction. The Parliament once again sought, in the case of ASB No 90/2, to force the issue between itself and the Council. The question is whether the Parliament may rely on the same power to amend the revenue section of the budget as it has in relation to noncompulsory expenditure.
23. The Council denies that the basis for such a power to amend may be found in Article 203(4) of the Treaty, which provides that
24. In that respect, the Council notes that the authors of the Treaty of 22 July 1975 made it possible for the Parliament to have some influence on the determination of priorities as regards the authorization of expenditure. Subject to the limits and conditions of the fourth and fifth subparagraphs of Article 203(9) of the Treaty, the Parliament has the final word on noncompulsory expenditure, while the Council has the final word regarding expenditure necessarily resulting from the Treaty or from acts adopted in accordance therewith. Although a certain ambiguity may be found in the wording of the second subparagraph of Article 203(4) of the Treaty, which speaks of the Parliament's right to amend the draft budget, it is none the less apparent from an analysis of Article 203 in its entirety that no right to amend revenue has been conferred upon the Parliament. The Council concludes that, even if Article 203(4) of the Treaty does not directly define the subject-matter of the amendments, it follows from the spirit, the structure and the wording of that provision that those amendments concern only noncompulsory expenditure. It would be paradoxical, to say the least, if precise procedures were laid down in Article 203 of the Treaty for compulsory expenditure and noncompulsory expenditure whilst the same did not apply for revenue.
25. The Council then claims that its interpretation is supported by an objective analysis of the system of own resources. In the Community system, the amount of resources to be entered results not from choices or from political or economic decisions that may be implemented by the budgetary authority but from the application of predetermined and legally binding rules laid down by the Treaty, the Own Resources Decision and the Financial Regulation. Articles 199 and 203(10) of the Treaty lay down the fundamental rule that the budgetary authority is to balance the budget, thus preventing the overall amount from being fixed at a level other than that which is strictly necessary to cover total expenditure. The entry of estimates of revenue in the preliminary draft budget and in the draft budget established by the Council is a technical operation in strict application of the Own Resources Decision and leaves no margin of discretion.
26. According to the Council, the Own Resources Decision confers the responsibilities and powers in matters of Community finance on the Member States. The first paragraph of Article 1 of that decision makes it clear that the Communities have no sovereign power to determine their own resources. In those circumstances, the Council cannot accept that the Parliament should make use of the provisions which authorize it to amend, or to propose modifications to, Community expenditure to assume the right to amend revenue and, furthermore, to claim to have the final word thereon. By rectifying, through ASB No 90/2, the estimates of revenue in the 1990 budget, the Parliament thus exceeded the powers conferred on it by Article 203 of the Treaty. It did not act in accordance with Article 203(10) of the Treaty, which, in the Council's view, constitutes the transposition to the financial sphere of the principle of the allocation of powers laid down in Article 4 of the Treaty.
27. The Council concludes by stressing that it expressed its disagreement and its formal reservation on each occasion that the Parliament amended the statement of revenue. It has never, in any way whatsoever, implicitly accepted the Parliament's attitude. It follows from the judgment of the Court in Case 68/86 United Kingdom v Council [1988] ECR 855, moreover, that an unlawful practice cannot derogate from the rules laid down in the Treaty and cannot therefore create a precedent binding on the institutions.
28. The Parliament observes in limine that the crux of the problem lies in the difference between the ways in which the two branches of the budgetary authority regard their respective prerogatives and the limits placed on them. It considers that that point of the dispute, which concerns the allocation of powers to the institutions within the meaning of Article 4 of the Treaty, should have first claim on the Court's attention. It is for that reason that the Parliament examines it first.
29. With regard to the Council's plea concerning the Parliament's lack of power, the Parliament claims first of all that it follows from the very words of Article 203 of the Treaty that it is also empowered to act in respect of budgetary revenue. An analysis of the structure, the system and the spirit of the Treaty confirms that assertion. Its use of that power must remain within the limits defined by Articles 4 and 203(10) of the Treaty. Accordingly, the Parliament must exercise its power to amend the revenue without tampering with the system of own resources established in accordance with Article 201 of the Treaty.
30. As regards the general structure of Article 203 of the Treaty, the Parliament claims that the words preliminary draft budget and draft budget found in various provisions of that article undoubtedly include an estimate of revenue and an estimate of expenditure. Thus, where the second subparagraph of paragraph (4) provides that the Parliament shall have the right to amend the draft budget, that can only refer to both the estimate of revenue and the estimate of expenditure. Paragraph (4), which in a sense constitutes the core of Article 203, draws a clear distinction with regard to the Parliament's budgetary powers between the right to amend, which covers both the estimate of revenue and the estimate of expenditure, and the right to propose modifications, which concerns only compulsory expenditure.
31. According to the Parliament, it follows from the wording of the second subparagraph of Article 203(4) of the Treaty that, except in the case of modifications relating to compulsory expenditure, it is entitled to amend the draft budget up to the final stage of the procedure. It believes that it clearly follows from Article 199 and the second paragraph of Article 203(2) of the Treaty and from Articles 1, 4, 5, 6 and 19 of the Financial Regulation that the Community budget covers both revenue and expenditure. There is thus no ground for considering that there is any rule whatsoever that removes the revenue section from the purview of the budgetary authority. The Parliament believes that, far from revealing a certain ambiguity, as the Council claims, the wording of the second subparagraph of Article 203(4) of the Treaty leads to the conclusion that the Parliament's right of amendment cannot be confined to the expenditure — particularly the noncompulsory expenditure — section of the budget. It must also apply to the revenue section.
32. As regards Article 203(8) of the Treaty, the Parliament observes that its power to reject the budget extends to expenditure and revenue. To claim otherwise would amount to saying that the outright rejection of the budget concerns only the estimate of expenditure and leaves the estimate of revenue untouched, which would clearly be contrary to the reasoning underlying that provision and to common sense.
33. As to the scheme of Article 203 of the Treaty, the Parliament submits that, even if paragraph (9) of that article must be regarded as a special rule in relation to the general rule in the second subparagraph of paragraph (4), the latter paragraph refers both to expenditure and revenue.
34. The Parliament then points out that, in the free exercise of its power to amend noncompulsory expenditure, it inevitably has an indirect effect on the revenue required to balance the budget. In the situation referred to in the fourth subparagraph of Article 203(9) of the Treaty, the Parliament, within the limits of its margin for manoeuvre, corresponding to an increase of half the maximum rate, has unfettered power to determine any amendments in expenditure that it wishes to make. Until the Parliament has adopted those amendments, the total amount of revenue required to balance the budget remains uncertain. If the Parliament enters a significant number of new appropriations, the rate of call-up of the residual resource would rise. If it refrains from doing so, that rate falls. The Parliament draws the conclusion that amending expenditure implicitly includes the right to amend revenue.
35. The Parliament bases further argument on the arrangement set out in Article 204 of the Treaty for the temporary spending of one twelfth of the preceding year's budget appropriations, which is aimed at situations where, at the beginning of a financial year, the budget has not yet been voted. The second and third subparagraphs of that article confer different powers on the Council and the Parliament with a view to authorizing expenditure in excess of one twelfth. The fourth subparagraph provides that the decisions referred to in the second and third subparagraphs are to lay down the necessary measures relating to resources to ensure application of that article. Article 204 draws no distinction between the powers of the Parliament relating to revenue and those of the Council. The Parliament concludes that if it has that power in such an emergency situation, it has such a power a fortiori in the context of the ordinary budgetary procedure.
36. As regards the Council's objective analysis of the system of own resources, the Parliament denies that the entry of estimates of revenue under Article 203(2) and (3) of the Treaty constitutes a simple technical operation. It regards that interpretation as unduly restrictive. In its view, it is only in an arrangement where expenditure is fully covered by financial contributions that the estimate of revenue automatically follows, without any margin of discretion, from the volume of expenditure. Even before financial contributions were replaced by own resources, Article 200 foresaw that there would be, alongside the financial contributions, other revenue which must necessarily be the subject of estimates and thus of decisions adopted by the budgetary authority. As the Court held in its judgment in Council v Parliament, cited above, under the former system the revenue entered in the budget determined the level of the value-added tax to be transferred by the Member States to the own resources of the Communities. In the system of own resources currently in force, the only element which precludes any margin of discretion is the fixing of the rate of the residual revenue, the GNP resource. Far from being a purely technical operation, the determination of the statement of revenue thus implies choices and discussions both at the stage of the preliminary draft budget and at the stage of the draft budget. The Council's view that the estimation and entry of revenue take place at the stage of the draft budget which it adopts at the first reading and are binding as an unassailable fact on the other branch of the budgetary authority is, according to the Parliament, the expression of the exclusive claim to be entitled to the final word on the entire revenue section of the Community budget.
37. Finally, the Parliament claims that the Council's application is completely silent as to the legal basis for such a claim. In the absence of any such information, which the Parliament regards as a fundamental requirement in these proceedings, it considers that the Council is exceeding its powers and infringing both Article 4 of the Treaty and, expressly, Article 203(10) of the Treaty. The Council's argument that the Parliament assumes the right to have the final word on compulsory expenditure is without basis, since the right to amend revenue cannot alter the nature and the amount of that compulsory expenditure. Therefore any modification of revenue may affect only noncompulsory expenditure. The Parliament concludes that the Council, by assuming the final word regarding revenue, clearly and simply infringes the rights of the Parliament.
38. With regard to the plea which the Council derives from Article 7 of the Own Resources Decision and Article 32 of the Financial Regulation, the Parliament first of all points out that draft ASB No 90/2 of the Council was aimed at granting the Member States a refund of the amounts which come exclusively to the Community as VAT own resources within the meaning of Article 2(1 )(c) of that decision. It considers that neither the wording nor the structure nor the background of that decision authorizes such a refund.
39. The Parliament notes in that respect that the system currently applicable dates from the Council Decision of 24 June 1988 on the Communities' own resources. That system may be clearly distinguished from its predecessors. The Own Resources Decision adds a fourth own resource arising from the application of a rate, to be determined under the budgetary procedure, to the sum of all the Member States' GNP. Being variable, the rate to be applied to the GNP is automatically determined by the final statement of the budgetary estimates. The rate of the VAT resource, on the other hand, was entrenched by the Own Resources Decision of 24 June 1988 irrespective of the budgetary deliberations regarding expenditure. The VAT resource is permanently fixed at 1.4% and thus may no longer be the subject of any refund, reimbursement or return to the Member States.
40. According to the Parliament, the reference in the tenth recital of the preamble to the Own Resources Decision to a maximum VAT rate of 1.4% relates to a very specific context, since that expression is used in connexion with the possibility that the assessment base mentioned in Article 2(l)(c) of that decision might have to be capped at 55% of a Member State's GNP. The word maximum must therefore be understood as meaning that occasionally, in certain situations, the rate for a Member State may be lower than 1.4% in accordance with objective national circumstances beyond the scope of any common budgetary discussion. Again, the addition of the word maximum may be understood for another reason set out in Article 2(4)(b) of the Own Resources Decision, which deals with the United Kingdom compensation. The Parliament concludes that the decision of 24 June 1988 entailed a permanent modification of the legal nature of the third own resource accruing from VAT. The rate of call-up is fixed and, in principle, cannot be touched, with the exception of objective adjustments. Its rate is 1.4%.
41. The Parliament then claims that Article 7 of the Own Resources Decision can concern only a surplus arising from the residual own resource, the GNP resource. It follows from the logic of the system that the carrying over of any surplus of revenue cannot affect revenue which naturally forms part of the Communities' own resources, which includes, inter alia, VAT revenue. Any decision to the contrary would mean that the Communities' own resources would be returned to the Member States. The very concept of own resources would thus be deprived of its meaning. The Parliament concludes that the obligation laid down in Article 7 of the Own Resources Decision to carry over the surplus of the Communities' revenue may not be understood as applying to a resource other than the residual resource, since that residual resource is characterized by having a variable rate which is automatically fixed at the close of the budgetary procedure.
42. Turning to Article 32 of the Financial Regulation, the Parliament claims that the following financial year in question expires on 31 December 1990. It wonders whether it was necessary for the Commission to incorporate from March 1990 the total of a temporary surplus balance, when it was clear that additional expenditure would appear during the course of the financial year. Assuming that the VAT resource could be carried over in such a way as to constitute a refund to the Member States — which the Parliament denies — the obligation to carry over the balance of the financial year 1990 had not yet materialized on 11 July 1990, the date on which it was declared that ASB No 90/2 had been adopted. The Parliament concludes that the application is, to say the least, premature.
43. According to the Parliament, Article 7 of the Own Resources Decision lays down no specific procedure and does not expressly stipulate any precise date for carrying over the surplus. At the most, it can be accepted that it should be done before the end of the financial year. According to the second and third paragraphs of Article 32 of the Financial Regulation, the balance may be entered in a general budget or through a supplementary and amending budget. That entry may thus be the subject of a number of successive amending and supplementary budgets. Article 15(3) of the Financial Regulation, moreover, provides that all preliminary draft supplementary and/or amending budgets must, as a general rule, be forwarded to the Council by the date laid down for the submission of the preliminary draft budget for the following financial year, that is by 1 September of the current financial year. That requirement is considerably mitigated by the words as a general rule. Furthermore, a budgetary procedure may validly extend beyond that date. That confirms that even the date 31 December of the following financial year is not a mandatory date for entering the balance. It follows that the Parliament committed no irregularity by not entering the entire balance for 1989 in ASB No 90/2.
44. Finally, and again in relation to Article 32 of the Financial Regulation, the Parliament notes that it follows from an analysis of Articles 2 and 7 of the Own Resources Decision that the carrying over of the balance cannot refer to any surplus in the VAT resource. The Parliament considers that, in so far as any doubt may arise as to whether that statement is consistent with the wording of Article 32, reference should be made to the Council's own assessment of the Own Resources Decision. That decision, as the Council confirms, constitutes a kind of organic law which ranks almost equal to the Treaty. The Financial Regulation, on the other hand, being a rule of secondary legislation, cannot contradict a higher legal rule. The Parliament was thus right to give preference to the solution based on the Own Resources Decision.
45. In its reply, the Council points out that Article 7 of the Own Resources Decision is sufficiently clear and precise to leave no room for interpretation. It is not possible to attribute or attach a surplus to one resource rather than to another, in so far as a budgetary surplus is above all the result of economies made during the course of the financial year in question. Where a surplus in revenue has been declared it must be carried over to the following financial year. According to the Council, it also follows from Article 15 of Council Regulation (EEC, Euratom) No 1552/89 of 29 May 1989 implementing the Own Resources Decision (Official Journal 1989 L 155, p. 1), which defines the balance of a financial year as the difference between all the revenue collected in respect of that financial year and the amount of payments made against appropriations for that financial year, that no distinction is made between the various categories of own resources for the purpose of calculating the surplus balance. The way in which the Parliament breaks down revenue into natural revenue, VAT revenue and residual revenue is contrary to the principle of the universality of the budget and the principle that resources are not to be allocated; that principle is laid down in Article 4(2) of the Financial Regulation, which provides that total revenue is to cover total appropriations for payments.
46. With regard to the Parliament's claim that the application is, to say the least, premature, the Council considers that a balance declared in one financial year must be entered in the budget of the following financial year without delay. The amendments made to the Financial Regulation by Regulation No 610/90 were specifically intended to deal with the duty of objectivity in the budgetary estimate. The procedure for estimating and entering the balance provided for therein ensures the most reliable estimate at the earliest opportunity, thus enabling the balance to be entered in the budget estimate without delay. While it is true that Article 32 of the Financial Regulation does not expressly determine any mandatory time limit for the amending and supplementary budget which must make the final correction, it would be contrary to the correct application of the budgetary mechanisms and to the requirement for objectivity in the budgetary estimate to adopt that amending and supplementary budget after the end of the financial year, as the Parliament suggests.
47. The Council rejects the Parliament's interpretation of Article 32 of the Financial Regulation. The implication of that article, according to the Council, is that the balance must be entered in two stages, namely when the estimates are entered in the preliminary draft budget and when any discrepancy is corrected through a supplementary or amending budget. That article thus makes no provision for the budgetary authority to determine the balance by means of successive acts, as it sees fit.
48. With regard to the Parliament's power to amend the statement of revenue in a Community draft budget, the Council disputes the Parliament's interpretation of Article 203(4) of the Treaty as giving it a general right to amend the budget until the final stage of the budgetary procedure. It finds none of the arguments put forward by the Parliament convincing.
49. With regard to the Parliament's power to reject a draft budget outright, it is sufficient, in the Council's view, to point out that that power is quite distinct from the power to amend the budget. Rejection implies that the procedure is recommenced, while an amendment voted by the Parliament constitutes an element to be included in the budget finally adopted. Nor is there any foundation for the Parliament's argument that it must correct the statement of revenue according to the amendments in noncompulsory expenditure, since that correction is of only a technical nature, imposed by the principle that the budget must balance. Similarly, the necessary measures in the matter of resources within the framework of the emergency procedure of provisional twelfths, laid down in Article 204 of the Treaty, concern only a technical correction to take account of any increase in noncompulsory expenditure. In those circumstances, the Parliament's argument that Article 203(9) concerning the right to amend expenditure is only a special rule in relation to the general rule in paragraph (4) on expenditure and revenue is unfounded. The Council considers that it has amply demonstrated that the general rule is precisely that the Parliament's power to amend within the meaning of Article 203 is confined to noncompulsory expenditure.
50. The Council insists that the system of own resources is based on the virtually automatic nature of revenue. The nature and volume of revenue, and the way in which it is levied on or called up from the Member States, are predetermined by mandatory rules. It follows that the determination of the statement of revenue is a purely technical operation which leaves the budgetary authority no real margin of discretion. The Council therefore does not see what choices and real decisions, referred to by the Parliament, have to be made.
51. With regard to the Parliament's argument that the VAT revenue must be called up in full irrespective of the level of expenditure forecast in the budget, the Council accepts that the VAT rate is not a rate that can be altered in the budgetary procedure. Nevertheless, the application of the Own Resources Decision may not lead to consequences which are contrary to the fundamental legal principles that govern the rules applicable to the Community budget, namely the principle that the budget must balance and the principle that it is necessary to consider the precise purpose of the system of own resources, which may be levied only within the limit of what is strictly necessary to finance the corresponding budget expenditure. According to the Council, the surplus declared in 1989 had to be entered in full in 1990 and the resources adjusted to what was actually necessary to finance expenditure. That solution, established in the Council's draft ASB No 90/2, actually led to a reduction in the rate of VAT in a way which complied with the rules and basic principles applicable in budgetary matters, with the Own Resources Decision and with the Financial Regulation.
52. In its rejoinder the Parliament reiterates that, in its view, the fundamental question of the Parliament's power to amend the revenue should be examined first. In an application where annulment is claimed on two grounds, one relating to the infringement of a fundamental principle laid down in the Treaty and the other to the infringement of a provision of secondary legislation — even one ratified by the Member States, like the decision of 24 June 1988 adopted pursuant to Article 201 of the Treaty — the Parliament considers that examination of the first ground takes priority. Article 4 of the EEC Treaty, which governs problems pertaining to powers, is found in the first part of the Treaty, devoted to Principles, while the decision of 1988 was adopted only in application of one of the Financial Provisions of the Treaty.
53. With regard to its power to amend the revenue section, the Parliament maintains that, in view of the clear words of the Treaty, the Council's interpretation of the second paragraph of Article 203(4) of the Treaty, in so far as it is based on the intention of the authors of the Treaty, cannot be taken into account. According to the Parliament, the Court has held that any reference to that intention as a means of interpretation has no more than a subsidiary character. In this case the Parliament refers to the wording of that article, which is always the starting point of a legal analysis, to the structure and the arrangement of the provisions.
54. The Parliament then claims that the Council's reply contains no clue that would enable the reader to ascertain the legal basis for its claim that it has the exclusive right to the final word regarding revenue. Until the Council has clearly indicated its position on that point, the Parliament considers that it is unable to give an informed reply to the criticism levelled against it.
55. In the Parliament's opinion, the Council considers that Article 203 of the Treaty confers on it a general power in budgetary matters, while all the other institutions have only a residual budgetary power, a limited power. Thus the Council disputes the argument based on Article 203(8) of the Treaty. In that respect, the Parliament notes that, where it rejects the entire budget, its action has a radical effect on revenue. It follows from the rule he who can do the most can do the least that the Parliament may also reduce the budgetary revenue, which is no more than the limited exercise of a right which, when used to the full, simply eliminates that revenue.
56. The Parliament claims that, contrary to what the Council states, the determination of the revenue is not automatic. It certainly implies an assessment of fact and of law. In law, the concrete case of the dispute provides a perfect illustration in that it raises the question whether it is legally possible to provide the Member States with a refund of the VAT payable.
57. With regard to the correct application of the Own Resources Decision, the Parliament notes that the Council shares the opinion that the rate of the VAT resource is not a rate that can be altered in the budgetary procedure and that the corresponding resource is payable in its entirety by the Member States, although that last declaration is qualified by the word normaly, the present case constituting, in the Council's view, the exceptional situation, which means that the VAT resource is not payable in full.
58. In its observations, the Commission considers the significance of each of the two questions raised by the Council in its application and concludes that it is appropriate to take them in the opposite order to that in which the Council submits them, as the Parliament has done in the statements which it has submitted to the Court.
59. With regard to the respective powers of the two branches of the budgetary authority in relation to revenue, the Commission considers that while it is true that Article 203 contains no specific provisions in that connection, the Council's argument that, in the present state of Community law, the Parliament has no power to modify, rectify or amend the statement of revenue in the budget appears to be manifestly excessive. There is no doubt that the Community budget shares with all public budgets the characteristic of being an expenditure budget, inasmuch as the first priority must be that of public expenditure and because that expenditure constitutes the cause and the justification for collecting public revenue. None the less, the budget has a revenue section and an expenditure section and a balance must be struck between revenue and expenditure. Those two fundamental rules apply to each of the two branches of the budgetary authority, the Council and the Parliament. Each has a part to play in relation to both expenditure and revenue, in accordance with the balance which Article 203 of the Treaty establishes between their respective powers throughout the budgetary procedure. There is nothing in the wording or the structure of Article 203 to justify regarding the estimates relating to revenue as being, as far as the right to have the final word is concerned, the sole prerogative of one branch or the other of the budgetary authority.
60. The Commission next observes that the budgetary authority is required to observe a number of limits, in particular those mentioned in the Own Resources Decision. With regard to determining the scope of the powers of the budgetary authority in relation to the various categories of own resources, the first two own resources provided for in Article 2 of that decision are entirely predetermined by binding rules of Community law which preclude any possibility of choice or of political or economic decisions. As for the third category of own resource, consisting of revenue accruing from the application of the uniform rate of 1.4% to the VAT assessment base determined according to the Community rules, the application of that resource is also a purely technical operation. The fourth resource, on the other hand, made up of the revenue from the application to the GNP of a rate to be determined under the budgetary procedure, may vary according to the choices taken by the budgetary authority regarding expenditure.
61. With regard to the first three categories of resources, the Commission considers that the budgetary estimates involve complex operations. The Commission has at its disposal the information and resources necessary for making the assessments on the basis of which the estimates must be drawn up and it thus plays a dominant role in the matter in its preliminary draft budget. However, there still remain uncertainties that are almost impossible to eliminate. It is also impossible to preclude the risk of errors of law or of fact. In such a case, both the Parliament and the Council must have the power, at all stages of the budgetary procedure, to make the necessary rectifications. The Commission considers that it would be unacceptable and unreasonable, for instance, for the Parliament to be obliged to finally adopt a budget (or reject it outright) when it was aware that there was an error in the estimates and thus that the budget was irregular. In this case, the Parliament exercised its power of rectification by adopting ASB No 90/2. In the Commission's view, the Parliament's amendments were intended to restore a correct estimate in relation to the own resource accruing from VAT.
62. Finally, the Commission claims that the Council and the Parliament must take account of the necessary links between them in relation to the exercise of their powers in the matter of estimates of revenue. The Parliament may not, without abusing its powers, establish forecasts of revenue at such a level that the compulsory expenditure could not be carried out, and, on the other hand, the Parliament's power in relation to noncompulsory expenditure necessarily implies that it is authorized to decide on the entry in the budget of the estimates of revenue. Furthermore, if it were necessary to recognize the Council as having an exclusive power in relation to the estimates of revenue, that power must necessarily entail the obligation for the Council, in accordance with the principle that the budget must balance, to enter as revenue in the budget the amounts necessary to enable the noncompulsory expenditure voted by the Parliament to be carried out. It is only at that final stage in the budgetary procedure, in other words a stage at which the Council may no longer intervene in the procedure, that the decisions of the Parliament relating to noncompulsory expenditure are finally adopted.
63. The Commission concludes that it must be accepted that the Parliament has the power of final word on the estimate of revenue, at least in relation to, on the one hand, the possibility of making the necessary rectifications to the statement of revenue to correct any legal or factual errors that it might detect when assessing that revenue and, on the other hand, the need to ensure that noncompulsory expenditure, in relation to which and in respect of whose entry in the budget it has the final word, is covered by revenue.
64. With regard to the carrying over of any surplus in revenue, the Commission states that three sets of provisions must be taken into account when the following budget is drawn up concerning the entry in that budget of the surplus balance:
65. The Commission considers that in a normal budgetary situation — that is, the situation foreseen by the Own Resources Decision when it established the fourth resource based on the GNP of the Member States — the three sets of rules set out above are perfectly compatible and may be applied without difficulty. When establishing the budget for the financial year 1990, however, the Community found itself in an unusual and quite exceptional position. As a result of very exceptional economic circumstances, appreciable savings were made in 1989, in particular in the sphere of agricultural interventions. The surpluses declared were such that, when the budget for the financial year 1990 was established, it was impossible to apply the three sets of rules simultaneously.
66. The budgetary authority was thus compelled to breach one or other of those rules and had to devise a solution that would enable the infringement to be as small as possible. To that end, it was required :
67. In the Commission's view, of those three rules the first two clearly appear to be fundamental. The third rule, on the other hand, relating to the carrying over of the surplus of revenue during one financial year to the budget of the following financial year, which follows from Article 7 of Decision 88/376 and Article 32 of the Financial Regulation, does not appear to have the same significance owing to the more technical nature of its subject-matter.
IV — Question put to the parties
68. The Court put the following question to the parties:
69. The Council explains in its answer regarding the position which it adopted in preliminary draft ASB No 90/2 that it entered the entire balance for the financial year 1989 in the budget for the financial year 1990. In view of the quite exceptional financial position of the Community, with a surplus of revenue over actual expenditure, the Council deemed it more appropriate to call up the revenue only up to the level required to finance the 1990 budget. As a result, there was no need to exhaust the VAT resource up to the maximum of 1.4% or to have recourse to the fourth resource based on the GNP. In those circumstances, it was also not necessary to call up the GNP own resources for the compensation for the United Kingdom.
70. The Parliament explains that it follows from the solution adopted by the Commission in its preliminary draft budget and taken up by the Parliament on the first and second reading that there was, strictly speaking, no call-up of the fourth resource based on the GNP, as defined in Article 2(1)(d) of the Own Resources Decision. The operation concerning financial compensation for the United Kingdom is of a purely technical nature. For the Member States other than the United Kingdom, that compensation takes the form of an additional charge. If, for a Member State, the amount of the VAT contributions arising from the application of the uniform rate to the VAT assessment base and increased by that additional charge exceeds the maximum rate of 1.4%, a call is made, pursuant to Article 5(2) of the Own Resources Decision, on the GNP own resources. That was the case for four Member States.
71. The Commission's answer to the question put by the Court is the same as the Parliament's. Like the Parliament, the Commission explains that the remark that the own resources based on the gross national product are called up only in connection with the financial compensation for the United Kingdom is merely the declaration of the result of the calculation of the financing of the amending and supplementary budget in application of the Own Resources Decision. In this case, the resource based on the GNP was not called up systematically. Only four Member States were required to pay the additional GNP resource. The Commission points out that, talcing account of the entry in ASB No 90/2 of a portion of the surplus for the financial year 1989 and in accordance with financing requirements, there was no need to call on the GNP resource, except in the case of those four Member States in relation to the financial compensation for the United Kingdom.
1 Language of the case: French.