Report for the Hearing in Case C-234/91
I — Facts and relevant legislation
A — The national legislation at issue
As part of the economic policy conducted by the Danish Government with a view to relaunching the economy, Law No 840 of 18 December 1987 on the Labour Market Contribution (Lov om arbejdsmarkedsbidrag, hereinafter Law No 840), which entered into force on 1 January 1988, imposed on undertakings a levy (AMBI) intended to enable the public authorities to finance certain social expenditure previously borne by employers.
The basis for calculating that levy, the rate of which was 2.5%, was determined differently depending on whether the undertaking was subject to VAT or completely or partially exempt from VAT. In the case of undertakings fully subject to VAT, AMBI was calculated on the basis of the same basis of assessment as VAT, namely turnover (the so-called VAT calculation method). A second method consisted in calculating AMBI on the basis of the aggregate wages and salaries paid by the undertaking, plus 90% (the so-called aggregate-wages calculation method). In the case of undertakings whose activities were partly or completely exempt from VAT, Law No 840 prescribed in some cases the first calculation method and in others the second method.
Both individuals and the Commission contested the compatibility of AMBI with Community law. On the one hand, the Danish companies, Dansk Dcnkavit ApS and P. Poulsen Trading ApS asked the customs administration to repay the contributions which they paid in 1988 and 1989. They argued that the levy was incompatible with Article 33 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 (OJ 1977 L 145, p. 1; the Sixth Directive) and with Article 9 et seq. or Article 95 of the Treaty. That dispute was brought before the Østre Landsret (Eastern Regional Court), which, by order of 20 June 1990, referred four questions to the Court for a preliminary ruling.
In addition, independently of those proceedings, the Commission, by application of 12 September 1991, challenged the compatibility of the levy with Article 33 of the Sixth Directive.
In the course of those proceedings, the Danish legislature adopted on 21 December 1991 Law No 891 repealing Law No 840 on the Labour Market Contribution and amending the Law on Value Added Tax (Lov om ophævelse af lov om arbejdsmarkedsbidrag og om ændring af merværdiafgiftsloven (momsloven) m. v., hereinafter Law No 891) with effect from 1 January 1992. That law completely repealed the provisions of Law No 840 which imposed AMBI on Danish undertakings. In addition it amended the rates of VAT in force in Denmark.
Also on 21 December 1991, the Danish legislature adopted Law No 892 on the Tax on Aggregate Wages and Salaries for Undertakings in the Financial Sector (Lov om ændring af lov on lønsumsafgift for virksomheder inden for den finansielle sektor).
The Court replied to the questions referred by the national court in the judgment of 31 March 1992 in Case C-200/90 Dansk Denkavit [1992] ECR I-2217, where it ruled as follows:
In its defence of 4 May 1992, the Danish Government averred that the application for a declaration that it had failed to fulfil its obligations had become otiose on account of the adoption of Law No 891 and the Court's judgment in Dansk Denkavit. The Commission contested that view. In its opinion, it is not certain that the levy abolished by Law No 891 for undertakings subject to VAT also abolished it for undertakings exempt completely or partially from VAT on account of their activities.
B — Pre-litigation phase
In its letter before action dated 22 May 1989, the Commission informed the Danish Government that it considered that the employment market contribution laid down by Law No 840 was a turnover tax which was incompatible with Article 33 of the Sixth Directive on account of its general nature and method of calculation, it being imposed on goods and services in like manner to VAT.
On 21 September 1989, the Danish Government responded to the Commission's objections that the levy in question was justified by the requirements of a policy of economic recovery, that it was charged on domestic and imported products alike and that the basis for its calculation differed depending on whether the undertaking was completely or partially exempted from VAT.
The Commission adhered to its view in its reasoned opinion of 27 September 1990: the levy imposed by Law No 840 was incompatible with Article 33 of the Sixth Directive because it had the objective characteristics of the common turnover tax within the meaning of Article 2 of the First Directive.
II — Procedure before the Court
The Commission's application was received at the Court Registry on 17 September 1991.
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.
The Commission claims that the Court should:
The Danish Government claims that the Court should:
III — Arguments of the parties
In its application, the Commission questioned whether the labour market contribution was compatible with Article 33 of the Sixth Directive. It argued that it was a general levy which was proportional to the price of the goods and services, irrespective of the number of transactions which took place in the production and distribution process prior to the stage at which the levy was imposed, and that it was therefore imposed in parallel to VAT.
In its defence, the Danish Government simply averred that the action for failure to fulfil obligations was of no interest since Law No 891 of 21 December 1991 had repealed Law No 840 of 18 December 1987.
In its reply of 12 June 1992, the Commission argued that the proceedings were still of interest. The Danish Government expanded on its arguments in the rejoinder.
A — Commission
According to the Commission, the proceedings are still of interest for two reasons.
First reason: in view of Articles 2 and 5 of Law No 891 repealing the labour market contribution, it is not certain that that law has repealed the labour market contribution as regards undertakings which are exempt from VAT completely (insurance, banks and other financial institutions) or partially.
Article 2 of Law No 891 provides as follows:
Furthermore, according to Article 5(3) of Law No 891:
It follows from the combined provisions of Article 2, which amends VAT rates, and Article 5(3), which determines the undertakings affected by those changes, that Law No 891 covered only undertakings subject to VAT and not undertakings completely or partially exempt from VAT.
The Commission states that, if that interpretation of the law is correct, Law No 891 did not take account of the judgment in Dansk Denkavit, cited above. According to that judgment, it is not necessary for the tax in question to resemble VAT in all respects for it to be equated with a turnover tax. It is sufficient for it to have its essential characteristics. The criteria set out in the aforementioned judgment (paragraphs 13 and 14) should be used to assess the contribution calculated in accordance with the aggregate-wages method.
Second reason: Law No 891 did not enter into force until 1 January 1992, that is to say, after the one-month period prescribed by the reasoned opinion. Consequently, there is still an interest in pursuing the action for a declaration that the Member State has failed to fulfil its obligations in order to establish the liability which it may incur (see the judgments in Case 39/72 Commission v Italy [1973] ECR 101 and in Case C-287/87 Commission v Greece [1990] ECR I-125).
B — The Danish Government
The Danish Government asks the Court to dismiss the action for failure to fulfil obligations on the grounds that there is no interest in pursuing it or it is inadmissible. It claims that there is no interest in pursuing the action as far as concerns the labour market contribution based on turnover (the VAT method) for undertakings subject to VAT. It further argues that the application is inadmissible, and in any event unfounded, as regards the labour market contribution based on undertakings' aggregate wages and salaries (the aggregate-wages method) for undertakings exempt from VAT.
1. The VAT method
The Danish Government considers that the complaint concerning the labour market contribution calculated in accordance with the VAT method no longer has any interest, even if, as the Commission maintains, the failure to fulfil obligations has to be assessed on the basis of the national legislation in force at the time when the action was brought. The question was determined by the Court in the judgment in Dansk Denkavit, cited above: there is no purpose in making a fresh finding that there has been a failure to fulfil obligations. Lastly, as the Danish Government has repealed Law No 840, a further judgment would have no new legal effects for the Danish State or for any citizens wishing to bring an action against the Danish authorities in order to recover the levy in question.
In the alternative, the Danish Government states that should the Court consider that there is still an interest in pursuing the action, it agrees with the Commission's observations concerning the incompatibility with Article 33 of the Sixth Directive of the labour market contribution calculated in accordance with the VAT method.
2. The aggregate-wages method
The Danish Government sets out separate arguments on the admissibility and justification of the application in so far as it relates to the compatibility with Community law of the labour market contribution calculated in accordance with the aggregate-wages method.
Admissibility
According to the Danish Government, the application is inadmissible in so far as it is directed against the labour market contribution calculated in accordance with the aggregate-wages method for undertakings exempt from VAT. The Commission did not raise that complaint in the letter before action or in the reasoned opinion (sec the judgments in Case 124/81 Commission v United Kingdom [1983] ECR 203, in Case 186/85 Commission v Belgium [1987] ECR 2029, paragraph 13, and in Case C-52/90 Commission v Denmark [1992] ECR I-2187, paragraph 23).
Justification
The Danish Government observes in the first place that the judgment in Dansk Denkavit did not consider the compatibility with Article 33 of the Sixth Directive of the labour market contribution calculated in accordance with the aggregate-wages method, even though it is mentioned in paragraph 13 that the calculation method used for undertakings which were not taxable persons for VAT purposes was different from that used for undertakings subject to VAT. The proceedings related only to the labour market contribution calculated in accordance with the VAT method and the parties put forward arguments on that question only.
Article 1 of Law No 840 provides that the Law on the Employment Market Contribution ... is hereby repealed. This clearly indicates that Law No 840 has been repealed in its entirety. Undertakings which are not taxable persons for VAT purposes have ceased to be subject to the labour market contribution since 1 January 1992. The Commission's reference to Articles 2 and 5 of Law No 891 is therefore irrelevant, since Article 2 relates to changes in VAT rates. The Danish Government contends that it is logical that Article 5(3) merely sets forth the date on which those changes came into force as regards supplies of goods and services subject to VAT. It therefore does not mean that the levy was repealed only as regards undertakings subject to VAT.
Secondly, the Danish Government asserts that the labour market contribution calculated in accordance with the aggregate-wages method is not incompatible with Article 33 of the Sixth Directive. It does not have the essential characteristics of VAT set forth by the Court in Dansk Denkavit, cited above:
VAT applies generally to transactions relating to goods or services; it is proportional to the price of those goods or services; it is charged at each stage of the production and distribution process; and finally it is imposed on the added value of goods and services, since the tax payable on a transaction is calculated after deducting the tax paid on the previous transaction, (paragraph 11)
In the first place, the labour market contribution calculated on the basis of the aggregate wages and salaries paid by an undertaking which is not a taxable person for VAT purposes is charged on only a limited number of undertakings. It is therefore not a tax applied generally to transactions relating to goods and services.
Secondly, since it is charged on actual aggregate wages and salaries plus 90%, it is not proportional to the price of goods or services and not charged at each stage of the production and distribution process on added value. Neither can levy charged at previous production or distribution stages be deducted.
Lastly, a set of concurrent features characterize a charge comparable to VAT (see the judgment in Dansk Denkavit, cited above). However, in the Danish Government's view, there is only one factor linking the labour market contribution calculated in accordance with the aggregate-wages method with VAT, namely that it is charged both on activities subject to VAT and on other industrial or commercial activities consisting of the supply of services effected for consideration. That factor is not enough in order for that contribution to be capable of being regarded as a turnover tax. According to the Court's case-law, a turnover tax which satisfies only one of the VAT criteria is not a charge comparable to VAT (see the judgments in Case 295/84 Rousseau Wilmot [1985] ECR 3759 and in Joined Cases 93/88 and 94/88 Wisselinl [1989] ECR 2671). The fact that the contribution calculated in accordance with the aggregate-wages method is dealt with in the same law as the contribution calculated in accordance with the VAT method has no bearing on its compatibility with Community law (see the judgment in Case C-343/90 Dias v Director da Alfândega do Porto [1992] ECR I-4673).
In the Danish Government's view, the labour market contribution calculated in accordance with the aggregate-wages method therefore cannot be equated with a turnover tax.
1 Language of the case: Danish.