Report for the Hearing in Case C-10/92

I — Facts and procedure

A — Facts

Mr Balocchi, who is engaged in real-estate management for various clients in Italy, is subject to VAT there.

In common with all persons liable to VAT, he has regularly to pay the tax authorities the difference between the VAT which he has received from his clients and that which he has paid in connection with his business operations; that difference is known as the net amount of VAT.

In his case, he has to make that payment every three months since his annual turnover is less than LIT 360 million.

As far as the fourth quarter of the year is concerned, Italian law provides that taxable persons have to pay before 20 December each year an interim payment amounting to 65% of the net amount of the VAT which must be paid for the whole of the quarter by no later than 5 March the following year; a recapitulative annual return also has to be made on that date.

Since the net amount of VAT cannot be definitely determined before the end of the quarter, the interim payment has to be calculated on the basis of the payment made for the same quarter of the previous year or, in the event that the taxable person anticipates that the net amount will be less, on the basis of his own estimates.

The rules for calculating the interim payment are set out in Article 6 of Legge Finanziaria No 405 of 29 December 1990 (Financial Law, published in the Supplemento Ordinario alla Gazetta Uffiáale No 303 of 31 December 1990).

The second paragraph of that article reads as follows:

In addition, the fifth paragraph of Article 6 of Law No 405/90 provides that a 20% surcharge on unpaid sums will be imposed upon taxable persons who do not pay all or part of the amount due.

Mr Balocchi considers that the said Article 6 is contrary to Community law in that it requires an interim payment in respect of the VAT payable for the whole quarter to be made before the end of the quarter. In his view, that provision is contrary to the rule that VAT is not chargeable until the taxable transaction is carried out which is contained in Articles 10 and 11 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, hereinafter the Sixth Directive).

In order to assert that view, Mr Balocchi brought an action in the Tribunale di Genova (District Court, Genoa) for a declaration that that provision was incompatible with Community law; the action was brought on 16 December 1991, that is to say, four days before the interim payment became due.

Two days later — on 18 December 1991 — Mr Balocchi further applied to the President of the Tribunale di Genova provisionally to suspend the obligation under that provision to make the interim payment. By order given on the same date, the President granted that application.

In addition, on the ground that the outcome of the main proceedings depended on the interpretation of Community law, the President of the national court referred the following questions to the Court of Justice for a preliminary ruling:

B — Procedure before the Court

The order of the President of the Tribunale di Genova was received at the Court Registry on 10 January 1992.

Pursuant to Article 20 of the Protocol on the Statute of the Court of Justice of the EEC, written observations were lodged:

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 — Written observations submitted to the Court

A — Observations submitted by Mr Balocchi

Mr Balocchi starts by pointing to two characteristics of the interim payment which he has to make under the Italian law before the end of the fourth quarter.

In the first place, he points out that the amount of the interim payment does not depend on the transactions carried out in the current quarter but on those carried out in the same period of the previous year. Admittedly, the law also allows the taxable person to elect to base the interim payment on his estimated turnover for the quarter in question. However, that option remains only theoretical since, in view of the fluctuating nature of economic activity, it is impossible to determine turnover accurately and a 20% surcharge is levied on any shortfall in the VAT paid.

Secondly, Mr Balocchi observes that the interim payment to be made on 20 December relates to the net amount of VAT for the whole of the quarter. That amount depends not only on transactions which have already been carried out on that date but also on transactions carried out between 20 and 31 December. Yet a substantial number of property transactions are carried out in that period, in particular in order to qualify for the tax rebates traditionally granted by the Italian State in that period in respect of that type of transaction. Traders and economic operators in the tourist industry are also affected, since they make a major part of their turnover at the end of the year. The Italian legislation actually discriminates against such taxable persons in so far as they are the only ones to be prejudiced by the obligation to make an interim payment.

After describing those two characteristics of the interim payment, Mr Balocchi considers the compatibility of the Italian legislation with Community law.

In that regard, he argues in the first place that the Italian legislation is contrary to Article 10 of the Sixth Directive. According to that provision — which harmonized the concepts of taxable event and the chargeability of VAT — VAT is not chargeable before the taxable transaction has been carried out. The Italian legislation contravenes that rule by providing that part of the VAT has to be paid before the quarter has come to an end when some transactions have not yet taken place.

Moreover, Article 10, the wording of which is precise and unconditional, has direct effect. It follows that individuals can raise the incompatibility of that legislation with Article 10 of the Sixth Directive before the national courts.

Mr Balocchi goes on to refer to Article 22(5) of the Sixth Directive. According to that provision, the net amount of the VAT is in principle to be paid when the periodical return is submitted, but may be paid after that date in certain circumstances. Article 22 authorizes Member States to demand an interim payment where payment is deferred. However, the interim payment cannot be demanded before the end of the tax period (for example, before the end of December in the case of the last quarter of the year), but only after the return has been submitted. That interpretation follows from the judgment in Case 42/83 Dansk Denkavit [1984] ECR 2649. It also follows from the meaning of the expression interim payment (acconto), which implies that the debt in respect of which an interim payment is made is certain. Since the net amount cannot be definitely determined until the return has been made, no interim payment may be demanded before that time.

In view of the foregoing considerations, Mr Balocchi proposes that the Court should reply to the national court's questions as follows:

B — Observations of the Italian Government

Principally, the Italian Government asks the Court to return the matter to the national court without answering the questions put.

It justifies its position by arguing, in the first place, that the case raises tax issues and the Tribunale di Genoa, in which the main proceedings have been brought, has no jurisdiction under Italian legislation to deal with such issues. Secondly, it observes that the preliminary questions were drawn up by the President of the Tribunale; since he was not seised of the main proceedings, he was not entitled to make a reference to the Court for a preliminary ruling. Thirdly, it states that the President did not hear argument from both sides and hence the tax authorities did not have an opportunity to give their views on the questions referred.

In the alternative, the Italian Government sets out the following considerations with regard to the compatibility with Community law of the legislation in question.

It states that the first question, which is concerned with the effect and purpose of Articles 10 and 11 of the Sixth Directive, is otiose: it is obvious that those provisions have direct effect and it follows from their very wording that their purpose is to define the chargeable event and the time when VAT becomes chargeable.

In response to the second question, the Italian Government argues that the Italian legislation complies with the Sixth Directive.

In that regard, it states in the first place that the legislation at issue does not require taxable persons to pay to the Treasury VAT in respect of transactions which have not yet been carried out. Admittedly, the interim payment is in principle calculated on the basis of the transactions carried out in the previous year and not during the current financial year. However, the law provides that the taxable person may estimate the interim payment himself if he anticipates that the net amount of the VAT to be paid will be less than that paid in the previous year.

The Italian Government goes on to argue that, before the interim payment was introduced, taxable persons did not pay to the Treasury the net amount of VAT for the last quarter until they made their return on 5 March, and therefore had at their disposal free of charge substantial sums for more than two months. It was in order to avoid this that the obligation to make an interim payment was introduced. Moreover, the prejudice suffered by taxable persons by reason of their having to make the interim payment in question is similar to that which they would have suffered if the date for the payment of the VAT had been fixed in early January rather than as 5 March. Such a date would have been compatible with the first subparagraph of Article 22(4) of the Sixth Directive, which provides that in principle payment must be made within two months of the end of the tax period in question.

Lastly, the Italian Government states that the law applies the option given to Member States by Article 22(5) to demand interim payments in respect of the tax due.

On the basis of those considerations, the Italian Government proposes that the national court's questions should be answered as follows:

C — Observations of the Commission

The Commission argues in the first place that the Italian legislation is contrary to Article 10 of the directive. The essential rule laid down by that provision — which harmonized the concepts of chargeable event and the chargeability of VAT — is that the tax is chargeable only when the taxable transaction has been carried out; advance payment of the tax — albeit partial — may in no event be demanded.

It follows from that rule that the law complies with the directive in so far as the interim payment relates to transactions already carried out on 20 December; in contrast, it is contrary to the directive as regards the part of the interim payment corresponding to transactions which have not yet been carried out on that date.

Individuals are entitled to assert before national courts that the law is incompatible with the directive in so far as Article 10 is worded clearly, precisely and unconditionally and hence has direct effect.

Secondly, the Commission considers that the directive contains no derogation from the prohibition on the advance payment of VAT.

Thus, Article 10(5) mentions only cases in which Member States may defer payment of the tax, but no case in which they are entitled to bring forward payment.

Likewise, Article 22 of the directive, which provides for the possibility of demanding interim payments, authorizes Member States to postpone the date for the payment of the tax and to demand interim payments between the time when the tax is chargeable and the date laid down for its payment. That interpretation follows from the meaning of the expression interim payment (accompte), which signifies partial payment of a debt which has already arisen, as approved by the Court in the judgment in Dansk Denkavit, cited above, and by Advocate General Mancini in his Opinion in that case.

Moreover, Article 27 of the directive allows Member States to derogate from the provisions of the directive in order to simplify the procedure for charging the tax or to prevent certain types of tax evasion or avoidance. However, that provision is not capable of justifying the obligation to make interim payments, since the derogating measures in question may not be adopted until they have been notified to the Commission and authorized by the Council and those formalities have not been carried out in the case of the Italian legislation.

Lastly, the Commission observes that the Member States sometimes require a direct tax to be paid before the period to which that tax relates has expired. But that technique — which should be categorized as an advance or early payment, but not as an interim payment (accompte) — cannot be employed in the case of VAT, where, for the reasons set out above, it would be contrary to Articles 10 and 22 of the directive.

In view of the foregoing considerations, the Commission proposes that the questions referred by the national court should be answered as follows:

III — Answers to questions put by the Court

By letter of 20 November 1992, the Court put two questions to the Commission.

First question

The Court asked the Commission whether other Member States also charge an interim payment in respect of the net amount of the VAT for the whole of a tax period before the tax period has come to an end.

In answering that question, the Commission took into account three criteria: the tax periods, the date on which the return has to be made and the date on which the VAT must be paid. Its answer may be summarized as follows:

A. Belgium

The general system provides for a tax period of one month; the return has to be made and the VAT paid before the 20th of the next month.

There are special systems depending on turnover:

B. Denmark

The normal tax period is three months. The return has to be made and the VAT paid before the 20th of the second month following the tax period. In particular cases the administration may shorten the normal quarterly tax period.

C. France

The French legislation provides for three tax systems: the flat-rate, specified and real profit systems. The flat-rate system applies to taxable persons whose annual turnover does not exceed certain levels; returns are made monthly or quarterly and interim payments fixed by the tax authorities are payable at the end of each tax period. The other two systems provide for simplified returns and quarterly or monthly interim payments based on the VAT paid in the previous year. At the end of the year, a regularization return is made.

D. Germany

The tax period is one year. However, returns have to be made and VAT paid monthly. An interim return is made when the tax is paid before the 10th of the following month.

Special systems are applicable:

E. Greece

The tax period is one year; interim returns and payments are made monthly, twomonthly and quarterly before a particular date in the month following the tax period. A recapitulative return is made two months before the end of the year.

F. Ireland

The normal tax period is two months and the recapitulative return has to be made and the VAT paid 19 days before the end of the tax period. With the authorization of tax authorities it is possible to be subject to a system which provides for monthly or annual tax periods.

G. Luxembourg

The tax period is one year. Returns and the payment of VAT depend on turnover. Where turnover is:

Taxable persons liable to pay VAT monthly or quarterly have to make a recapitulative annual return before 1 May the following year.

H. Netherlands

The tax period is one year. The periods for making returns and paying VAT vary according to the amount payable. Where the VAT is

A recapitulative annual return has to be made.

I. Portugal

The normal system provides that returns and payments have to be made:

J. United Kingdom

The tax period is three months; the return has to be made and the VAT paid at the end of the tax period. In some cases, the tax period is reduced to one month; taxable persons with a turnover of no more than £300000 may, on request, make annual returns and interim payments determined by the tax authorities in the course of the year.

K. Spain

The normal tax period is three months; returns have to made and the VAT paid within 20 days of the end of the quarter.

In some cases, the tax period may be reduced to one month, when returns have to be made and the VAT paid within 20 days of the end of the month. A final, recapitulative annual return must be made before 20 January.

According to the Commission, the quarterly and monthly interim payments provided for by the Belgian special systems and the quarterly interim payments provided for by the Luxembourg legislation are in fact advance payments of tax chargeable on transactions which have not yet been carried out.

Second question

The Court asked the Commission to answer the following question:

Pursuant to Council Directive 91/680/EEC of 16 December 1991 supplementing the common system of value added tax and amending Directive 77/388/EEC with a view to the abolition of tax frontiers (OJ 1991 L 376, p. 1), VAT payable on intra-Community transactions will no longer be paid on importation but will be included in the periodical return as from 1 January 1993.

It follows that the Member States will no longer receive the VAT on importation but only at the end of the tax period.

Do some Member States intend to introduce an obligation to make an interim payment in order to receive the VAT more rapidly?

The Commission stated in response that it was not at present in a position to say whether some Member States intended to introduce a provision to that effect.

1 Language of the case: Italian