C-181/78

JUDGMENT OF 12. 6. 1979 — JOINED CASES 181 AND 229/78

2. A Member State has adopted a system after entering into the consultations to such as that referred to in the fourth which reference is made in Article 16 paragraph of Point 2 "Regarding of the directive, even though it has Article 4" of Annex A to Directive not defined the concept of an under­ No 67/228/EEC if it has laid down taking otherwise than as "any person in its legislation that turnover tax shall who independently carries on be levied inter alia on the supply of business". goods and services by undertakings,

In Joined Cases 181 and 229/78

REFERENCES to the Court under Article 177 of the EEC Treaty by the Hoge Raad [Supreme Court] of the Netherlands for a preliminary ruling in the proceedings pending before that court (in Case 181/78) between

Ketelhandel P. van Paassen B.V., Wateringen (Netherlands) and

Staatssecretaris van Financiën [Secretary of State for Finance] / Inspecteur der Invoerrechten en Accijnzen [Inspector of Customs and Excise], The Hague,

composed of: H. Kutscher, President, J. Mertens de Wilmars and Lord Mackenzie Stuart (Presidents of Chambers), P. Pescatore, M. Sørensen, A. O'Keeffe and A. Touffait, Judges,

Advocate General: G. Reischl Registrar: A. Van Houtte

gives the following

JUDGMENT

Facts and Issues

The facts of the case, the course of the as separate taxable persons, but as one procedure and the observations sub­ single taxable person, persons who, mitted pursuant to Article 20 of the although independent from the legal Protocol on the Statute of the Court of point of view, are, however, organically Justice of the EEC may be summarized linked to one another by economic, as follows: financial or organizational relationships. Any Member State intending to adopt such a system shall enter into the consul­ tations mentioned in Article 16". I — Facts and procedure

bought and sold calves in the capactiy of the Minister van Financiën [Minister for a commission agent on behalf of Finance] appealed against this judgment Denkavit Nederland B.V.. The main on a point of law to the Hoge Raad activity of the latter company is the [Supreme Court of the Netherlands], production and sale of milk for calves. which by a judgment of 11 October 1978 asked the Court of Justice, pursuant to The two companies are managed by the Article 177 of the EEC Treaty, to give a same persons, and they both belong to a ruling on four questions concerning the group of some 20 companies whose interpretation of the Second Council shares are held by two family groups Directive on the harmonization of (Buys and Pesch). Thus Denkavit turnover taxes: Dienstbetoon B.V. (hereinafter referred to as "the Company") bought new-born "1. Has a Member State adopted a calves from cattle dealers in its own system such as that referred to in name but on behalf of Denkavit Point 2 'Regarding Article 4' of Nederland B.V., and it sold calves Annex A to the Second Directive, if fattened by Denkavit Nederland B.V. to it has laid down by a Law that third parties. In the tax period 1973 to turnover tax shall be levied inter alia 1974, the Company — regarding itself as on the supply of goods and services a separate undertaking pursuant to by undertakings and if the concept Article 3 (5) of the Law of 1968, which of an undertaking is not sub­ provides that "goods . . . which are sequently defined in that Law more supplied through a commission agent or closely than as 'any person who similar undertaking ... shall be deemed independently carries on business', to be supplied to and then by that under­ while from the preparatory stages of taking" — paid turnover tax of 4°/o on the Law prior to its coming into the turnover net of tax, which represents force it is clear that the concept of 3.85% of the gross selling price an undenaking can also cover a including tax, and it deducted input tax combination of persons who, of 4.25% of the purchase price in although independent from the legal accordance with the Law. Thus the point of view, are, however, Company claimed and obtained organically linked to one another by repayment of an amount equal to the economic, financial and organi­ difference between 4.25% and 3.85% of zational relationships? the prices at which it had effected the 2. If Question 1 is answered in the purchases and sales in question. negative: Are the national courts The Inspecteur took the view that this nevertheless at liberty, in applying repayment was not justified, and the Law, to interpret the concept of imposed an additional assessment an undertaking in the aforesaid contending that he did not consider the manner as intended by the national Company to be a separate undertaking legislature?

Upon hearing the report of the Judge- In September and October 1971, van Rapporteur and the views of the Paassen had deducted as input tax the Advocate General, the Court decided to tax included in the price of the boilers open the oral procedure without any sold to it by Circula. After an preparatory inquiry. investigation, the Inspecteur sent van Paassen on 20 December 1973 an additional assessment concerning the amount of the tax which, in his opinion, II — Observations submitted pur­ had been wrongfully deducted because suant to Article 20 of the van Paassen and Circula were to be Protocol on the Statute of regarded as a "single entity for tax the Court of Justice of the purposes". Van Paassen lodged an EEC objection, which the Inspecteur rejected on 29 November 1974 again on the ground that the two companies Question 1 constituted -a "single entity for tax purposes". The Companies maintain that it follows from the provisions of the Second Following the appeal brought by van Directive at issue that Article 4 thereof Paassen on 24 January 1975, the Second lays down a fundamental rule, to which

JUDGMENT OF 12. 6. 1979 — JOINED CASES 181 AND 229/78

Finally, the Companies submit that the — and finally, it expressly adopted such Netherlands did not even legally propose a system. to adopt a system involving the single entity for tax purposes, since the consul­ tations provided for in Article 16 of the directive did not take place, and that According to the three conditions laid therefore the question should be down in the Directive, the Netherlands answered as follows: had to make express legal provision for any additional system which might have been specially adopted. "A Member State may adopt a system such as that referred to in Point 2 'Regarding Article 4' of Annex A to the Furthermore, the Companies consider Second VAT Directive only under the that the Netherlands Law at issue must conditions as to substance and as to form

VAN PAASSEN v STAATSSECRETARIS VAN FINANCIEN

which are laid down in that Directive. In although independent from the legal the circumstances described by the point of view, are, however, organically national court making the reference, linked to one another by economic, such a system cannot be held to have financial and organizational relation­ been adopted". ships".

The Netherlands Government makes the

The Commission takes the view that the preliminary observation that Case Second Directive left the Member States 181/78 concerns the retroactive levying a wide area of discretion, and that the of turnover tax in respect of periods in institution of the single entity for tax 1971; and that since in its judgment of purposes appears to be a long standing 2 February 1977 the Hoge Raad has concept in Netherlands case-law and already held that the common value- theoretical writing. Therefore it does not added tax system defined in the Second Council Directive did not come into seem necessary for the concept of an undertaking appearing in Article 7 (1) of force until 1 January 1972, it may well the Turnover Tax Law 1968 to be be asked whether the questions raised in defined expressly as is done in Point 2 of the present case merit any attention. Annex A to the directive.

JUDGMENT OF 12. 6. 1979 — JOINED CASES 181 AND 229/78

Question 2 so as that principle deprives undertakings of the power to deduct input tax for which provision is made in Article 11 of The Companies rely on the theory of the the Directive and is one of the essential direct effect of directives in order to components of the VAT system. answer this question.

VAN PAASSEN v STAATSSECRETARIS VAN FINANCIEN

follows from its observations on leave the Member States any discretion Question 1, Article 4 of the Second regarding the circumstances in which it Council Directive of 11 April 1967, must be applied. Moreover, in the field interpreted in the light of Point 2 of of harmonization, the Court has held Annex A thereto, allows the principle of (Case 33/70 SACE [1970] ECR 1213) the single entity for tax purposes to be that directives have legal consequences used in the field of turnover taxes; and it for individuals. proposes that this question should be answered as follows: Consequently, the Companies take the view that even though Article 16 of the "The Netherlands courts may interpret Directive refers to Article 102 of the the concept of an undertaking in the EEC Treaty, it is none the less necessary manner indicated in Question 1 as to examine the consultation procedure intended by the national legislature, since within the framework of the binding law that concept is not contrary to the of directives; and this opinion is provisions of the Second Council confirmed by the case-law of the Court Directive of 11 April 1967 concerning (Case 5/77 Tedeschi v Denkavit [1977] VAT". ECR 1555; Case 5/73 Balkan Import [1973] ECR 1092; Case 31/74 Galli [1975] ECR 47). Question 3

On the basis of the principles thus The Companies Are of the opinion that defined, the Companies submit that three Questions 3 and 4 must also be dealt conditions must be fulfilled before the with if Question 1 is answered in the consultation procedure can be regarded negative and Question 2 in the affir­ as having been lawfully applied: mative.

According to the Companies, the the single entity for tax purposes (see importance of express and correct Article 7 (1) of the Law) so that the application of the consultation procedure Commission was not able to ascertain is obvious: first, because the Commission that in that case a problem subject to the can thus carry out its task; secondly, consultation procedure might arise. because every taxpayer must be able to check whether the tax provisions which impose a duty on him have been adopted legally, hence in accordance with the As this appears to be confirmed by the consultation procedure. case-law of the Court of Justice (Case 48/72 Haecht II [1973] ECR 77; Case 71/74 Frubo [1975] ECR 563; Case 61/77 Commission v Ireland [1978] ECR 417; Case 28/77 Tepea v Commission The preparatory stages do not reveal [1978] ECR 1391) the answer should anything regarding the consultation therefore be the following: procedure, which, in the Companies' submission, is in itself contrary to the fundamental requirement of publicity. The Netherlands Government merely "The Netherlands did not enter into the sent the draft law to the Commission consultations to which reference is made without pointing out to the Commission in Point 2 'Regarding Article 4' of Annex that it specifically wished to consult it A to the Second VAT Directive". over the adoption of a system such as that referred to in Point 2 "Regarding Article 4" of Annex A to the Directive; the Commission does not appear to have The Commission states that the made any observation concerning such a Netherlands Government sent it three system; and those coming under the law letters concerning the preparatory stages were not able to establish whether the and publication of the Law of 1968 consultation procedure had been relating to VAT (which letters it correctly applied in relation to this produces as an annex to its statement of specific problem. observations) and expresses the view that those letters can hardly be regarded as due consultations for the purposes of Article 16 of the Second Directive, since the State concerned did not precisely and Consequently the Companies argue that expressly point out the provisions of the the mere fact of sending a draft law to Directive which made consultations the Commission can clearly not replace a mandatory or the draft measure or the consultation procedure on a specific Community rules to which the draft partial problem, because the Commission measure provided exceptions. However, cannot be required itself to discover from in the present case the Commission is of a draft law which is sent to it the points the opinion that the wording of Article on which consultations are desired. Fur­ 16 of the Second Directive is not very thermore, in this way the Member States clear as regards a Member State's could in fact evade their obligations to obligation to enter into consultations enter into consultations by merely where it does not expressly adopt a sending the Commission every draft law. system involving the single entity for tax In the present case it is also very purposes but retains in force an existing important to note that the text of the traditional system, and that therefore the draft law contained absolutely no rule on answer should be that:

"The Netherlands did not effectively until 1 January 1972 — it is doubtful enter into the consultations preliminary whether its provisions concerning the to the adoption of the system mentioned consultation procedure apply in the in the fourth paragraph of Point 2 present case, the Government of the 'Regarding Article 4' of Annex A as they Federal Republic of Germany analyses were required to do by Article 16 of the the development of the consultation Second Directive on VAT. However, it procedure in the course of the different may be doubted whether that consul

form. Finally, it refers to the statement to a subsequent procedure under Article lodged by the Commission in Case 102." 126/78, Spoorwegen, in which the Commission takes the view that, even if The Government of the Federal Republic the consultation procedure has not been of Germany considers that it follows that carried out in due form, the formal Member States in principle fulfil their defect which results from this obligation to enter into consultations nevertheless appears insufficient in itself under Article 16 of the Second Directive to justify a finding that the national on turnover tax by sending the necessary measure is invalid. information to the Commission and,

For this purpose, out — were carried out in accordance communication of a draft law may with the provisions of the fourth suffice in certain cases, if the draft law, paragraph of Point 2 of Annex A to the accompanied if necessary by a statement Second Directive. of the grounds on which it is based, allows an assessment to be made of the After pointing out that — since the necessity for the procedure under Article Second Directive did not enter into force 102".

Question 4 — thirdly, because that additional tax burden, which is unforeseeable for The Companies propose the following the taxpayer, does not conform with answer, in reliance on the binding nature the system introduced by the Second and the direct effect of the directive Directive since it is contrary to the which — in their submission — they protection which the constitutions of have proved above: all the Member States give taxpayers against tax burdens which do not result clearly and foreseeably from "So long as the prescribed consultations the law itself; have not taken place, the special system provided for in Point 2 'Regarding Article 4' of Annex A to the Second — fourthly, the argument of VAT Directive cannot be legally expediency, according to which the adopted. Netherlands need the concept of the single entity for tax purposes in order In these circumstances, the national to counteract certain consequences courts are not at liberty to consider which they consider undesirable, persons who are linked to one another cannot be upheld, on the one hand, by economic, financial or organizational because this is no reason to exempt a relationships as a single taxable person". Member State from obligations arising from a directive and, on the other, because even if correct levying Finally, the Companies examine the of tax is in fact wholly or partly consequences for Netherlands law in the field of turnover tax. jeopardized by abnormal transactions between linked undertakings, that risk can be removed in the If the argument — defended by the Netherlands by use of the concept of Companies — that there is no single fraus legis along the lines of the entity for tax purposes were upheld; the possibility offered in Germany by consequence would be satisfactory from Article 42 of the Abgabenordnung all points of view, because the result [Order on Levies] (abuse of the legal would be application of the VAT system possibilities for arranging in accordance with the fundamental rules transactions) and in France by Article laid down in that connexion by the 1649, quinquies B, of the Code Second VAT Directive. General des Impôts [General Tax Code] ("abus de droit"); a fortiori as On the other hand, if the argument in both of the present cases concern favour of the single entity for tax ordinary transactions. purposes were upheld, the consequences would be unsatisfactory: The Commission doubts whether any — first, because that rule was never formal defect which may result from the failure to consult the Commission can in expressed in writing in the Law; itself entail the invalidity of the national system, and proposes that the question — secondly, because the old system of should be answered as follows: the single entity for tax purposes, designed for a multi-stage turnover tax system, would lead to an increase "The national courts can interpret the in the tax burden by preventing input concept of an undertaking in the manner tax from being deducted on intended by the national legislature, purchases in certain cases; provided that they remain within the

In the submission of the Government of the Federal Republic of Germany, this Finally, the Government of the Federal view is confirmed by the case-law of the Republic of Germany states that in Court of Justice on Articles 102 and 93 principle the Member States retain of the EEC Treaty (Case 6/64 Costa v sovereignty in matters of taxation, and ENEL, cited above) and on Article 115 that in this connexion it cannot be of the EEC Treaty (Case 27/78, not yet ignored that tax measures are an published, and Case 62/70 Bock [1971] indispensable instrument of economic ECR 897, at p. 917). And since moreover policy, which in principle comes within Articles 93, 115 and even 102 are more the area reserved to the Member States precise and more binding — because the under the Treaty. Commission may decide with binding effect, or at least recommend on the basis of the consultations which have been entered into, that the national measure shall be amended or abolished Consequently, the Government of the — it would hardly be consistent with the Federal Republic of Germany proposes structure of the Treaty if mere failure to that the answer to Question 4 should be enter into consultations which do not that "breach of the duty to enter into lead to a formal procedure ending in a consultations under the fourth paragraph recommendation by the Commission of Part 2 of Annex A to the Second were in itself to entail the invalidity of Directive on turnover tax does not give the legislative measure under rise to rights for individuals which the consideration. national courts must protect".

3 In order to resolve this issue, the national court submitted four identical questions in each of the Joined Cases. The first and third of them are very closely connected, and should therefore be dealt with together.

VAN PAASSEN v STAATSSECRETARIS VAN FINANCIEN

4 In its first question, the national court asks whether "a Member State has adopted a system such as that referred to in Point 2 'Regarding Article 4' of Annex A to the Second Directive, if it has laid down by a Law that turnover tax shall be levied inter alia on the supply of goods and services by under­ takings and if the concept of an undertaking is not subsequently defined in that Law more closely than as 'any person who independently carries on business', while from the preparatory stages of the Law prior to its coming into force it is clear that the concept of an undertaking can also cover a combination of persons who, although independent from the legal point of view, are, however, organically linked to one another by economic, financial and organizational relationships", and in the third, if Question 1 is answered in the affirmative, it asks whether "the Netherlands entered into the consul­ tations to which reference is made in Point 2 'Regarding Article 4' of Annex A to the Second Directive". This question is in effect an extension of Question 1, because if Question 3 is answered in the negative this would threaten to deprive an affirmative answer to Question 1 of any effect, since the provision referred to in Question 3 requires a Member State to consult the Commission when it is contemplating the adoption of the system of a single entity for tax purposes.

8 According to Point 2 "Regarding Article 4" of Annex A that system could be expressly allowed, in national legislation introducing the provisions of the Directive relating to VAT into its internal legal order, provided that the Member State entered into the consultations mentioned in Article 16 of the Second Directive.

9 Therefore the question is whether the measures adopted by the Netherlands Government to introduce the provisions of the Directives on VAT into its internal legal order were brought to the attention on the Commission in accordance with the requirements of Article 16.

10 Article 16 does not lay down any particular procedure from the point of view of the form of the reference to the Commission, but it does require that such reference should be made "in good time", that is to say that the Commission should be given a reasonable period of time to examine the documents sent to it, that it should know the purpose for which the Member State has sent them to it and that they should contain complete information enabling the Commission — in accordance with Article 101 of the Treaty — to find that a difference between the provisions laid down by law, regulation or administrative action in Member States is distorting the conditions of competition in the common market and that the resultant distortion needs to be eliminated.

11 The correspondence sent to the Commission by the Netherlands Government concerning the preparatory stages and publication of the Netherlands Turnover Tax Law 1968 comprises three letters:

(1) a letter of 3 November 1967 transmitting "the Draft Law, the statement of the grounds on which it was based and annexes, in connexion with the provisions of the Council Directives of 11 April 1967",

(3) The matter was referred to the Commission in good time, since the last reference was made in July 1968 whilst the Directive did not have to be implemented until 1 January 1972, and the Commission therefore had more than three years to make any necessary observations to the Netherlands Government.

12 It must therefore be found that, having regard to the terms of Article 16 of and Point 2 "Regarding Article 4" of Annex A to the Second Directive, the Government of the Netherlands fulfilled the obligations imposed by the Directive in order to retain the system of the single entity for tax purposes in force in its legislation.

JUDGMENT OF 12. 6. 1979 — JOINED CASES 181 AND 229/78

13 Therefore the answer to Questions 1 and 3 should be that a Member State has adopted a system such as that referred to in the fourth paragraph of Point 2 "Regarding Article 4" of Annex A to the Second Directive if it has laid down in its legislation that turnover tax shall be levied inter alia on the supply of goods and services by undertakings, after entering into the consul­ tations to which reference is made in Article 16 of the directive, even though it has not defined the concept of an undertaking otherwise than as "any person who independently carries on business".

14 Questions 1 and 3 of the national court having been answered together in the affirmative, there is no need to answer Questions 2 and 4.

Costs

in Article 16 of the directive, even though it has not defined the concept of an undertaking otherwise than as "any person who independently carries on business".

Kutscher Mertens de Wilmars Mackenzie Stuart

Pescatore Sørensen O'Keeffe Touffait

Delivered in open court in Luxembourg on 12 June 1979.

A. Van Houtte H. Kutscher

Registrar President