C-255/81

JUDGMENT OF THE COURT (FIRST CHAMBER) 10 JUNE 1982'

R. A. Grendel GmbH v Finanzamt für Körperschaften in Hamburg (reference for a preliminary ruling from the Finanzgericht Hamburg) (Direct effect of directives — Value-added tax — Exemption)

Case 255/81

Tax provisions — Harmonization of laws — Turnover tax — Common system of value- added tax — Exemptions provided for in the Sixth Directive — Exemption for credit negotiation transactions — Possibility of individual relying on the appropriate provision in the event of the directive's not being implemented — Conditions (Council Directive 77/388, Art. 13 S (d) 1.)

As from 1 January 1979 it was possible that directive, by a credit negotiator for the provision concerning the exemp- where he had refrained from passing that tion from turnover tax of transactions tax on to persons following him in the consisting of the negotiation of credit chain of supply and the State could not contained in Article 13 B (d) 1. of claim, as against him, that it had failed Directive 77/388 to be relied upon, in to implement the directive. the absence of the implementation of

In Case 255/81

T H E C O U R T (First Chamber)

composed of: G. Bosco, President of Chamber, A. O'Keeffe and T. Koopmans, Judges,

Advocate General: Sir Gordon Slynn Registrar: P. Heim

gives the following

JUDGMENT

Facts and Issues

R. A. Grendel GmbH, whose registered Sutes by that provision to exempt inter office is in Hamburg, negotiates credit of alia credit negotiation transactions from every kind. As such it was liable in 1979, turnover tax was incorporated in under the legislation in force at the time, German law as from 1 January 1979, to pay turnover tax on the income which since the final date for the actual it received in the form of commissions implementation of Directive 77/388 in for its activity as a credit negotiator. By all the Member States, originally laid notice of assessment of 3 September down by the directive itself as 1 January 1980, the Finanzamt für Körperschaften, 1978, was postponed for the Federal Hamburg, fixed the turnover tax in Republic of Germany and six other respect of those services. After an Member States until 1 January 1979 by unsuccessful objection against the notice the Ninth Council Directive of assessment R. A. Grendel GmbH 78/583/EEC of 26 June 1978 on the brought an action on the grounds that harmonization of the laws of the according to Community law its turnover Member States relating to turnover taxes was no longer subject to turnover tax. It (Official Journal 1978, L 194, p. 16). based its claim on Article 13 B (d) 1. of the Sixth Council Directive 77/388 of 12 May 1977 on the harmonization of the laws of the Member States relating to The Finanzamt für Körperschaften in turnover taxes — Common system of Hamburg did not accept that argument value-added tax: uniform basis of because as a matter of principle the assessment (Official Journal 1977, L 145, Community directives did not give p. 1). individuals a direct right to be treated in accordance with the directives. Such a legal right existed only where a directive That provision, which falls under Title X did not allow the Member States any of the directive, dealing with exemptions, scope for the exercise of a discretion. provides as follows: That was not however the case as regards the contested turnover of R. A. Grendel GmbH. "Without prejudice to other Community provisions, Member States shall exempt the following under conditions which By order of 4 September 1981 the they lay down for the purpose of Second Senate of the Finanzgericht ensuring the correa and straightforward Hamburg stayed the proceedings and application of the exemptions and of referred the following question to the preventing any possible evasion, Court for a preliminary ruling under avoidance or abuse:... Article 177 of the EEC Treaty:

The order of the Finanzgericht Hamburg have direct rights under Community was lodged at the Court Registry on 18 directives. An individual may rely on a September 1981. duty imposed on a Member Sute by a directive only if it is a question whether the Member State has kept within the Pursuant to Article 20 of the Protocol on limits of discretion given it in im- the Statute of the Court of Justice of the plementing the directive. In the present EEC written observations were submitted case however the person concerned is by the Government of the French requiring the direct application of a Republic, represented by Mrs M. directive even before the Member Sute Aulagnon, Member of the Secretariat has incorporated it into its national law. General of the Inter-Ministerial Committee for Questions of European Economic Cooperation in the Prime Minister's office, the Commission of the European Communities, represented by Even if (contrary to its view) a directive its Legal Adviser, P. Karpenstein, the could give an individual a personal right Finanzamt für Körperschaften in this would not be so in the present case Hamburg, the defendant in the main because the introductory sentence to action, represented by its director, Mr Article 13 of Directive 77/388, like Part Biiltmann, and the Government of the C (b) of that article, confers a discretion Italian Republic, represented by A. on Member Sutes. Squillante, Head of the Department for Contentious Diplomatic Affairs, Treaties and Legislative Matters. According to the first provision Member Upon hearing the report of the Judge- Sutes may lay down the conditions for Rapporteur and the views of the the purpose of ensuring the correa Advocate General the Court decided to and straightforward application of open the oral procedure without any exemptions and of preventing any preparatory inquiry. possible evasion, avoidance or abuse. So long as those conditions are not laid down there the exemption cannot be granted under the law of the Member By order of 3 February 1982 the Court, Sutes and therefore cannot have "direct pursuant to Article 95 (1) and (2) of the effect". Rules of Procedure, referred the case to the First Chamber.

The Finanzamt puts forward further The Government of the French Republic arguments against holding that the takes the view that the question put to taxable person has a personal right to the Court by the Finangericht Hamburg exemption from tax. Those arguments should be answered in the negative. are derived from the fact that the exemption is part of a system of tax charges and that the direct application of the Community directive without the adoption of national provisions would It considers that the principle of direct lead to legal uncertainty and ambiguity. applicability of Community directives as stated in certain judgments of the Court is not general in scope but is intended solely to ensure the "effectiveness" of directives. That means that direct applicability is confined to the "particular circumstances" and is not It emphasizes that liability to tax may subject in particular to the more or less according to the circumstances of the mandatory terms of the obligations particular case sometimes be more imposed by the directives. Thus, for favourable to the credit negotiator than example, where a Member Sute has exemption from tax. failed to take the requisite implementing measures for a directive within the pre- scribed period only provisions containing "unconditional and sufficiently precise obligations" are capable of being directly applied. Furthermore, exemption a posteriori for the transactions of credit negotiators would have far-reaching consequences both for the negotiators themselves and for the persons to whom the services are The caution exhibited in the decisions of supplied since the negotiator would have the Court is particularly justified in the to pay the turnover tax shown, albeit field of taxation in which, save in wrongly, on his invoices for the period relation to customs duties, no provision of assessment to tax but his clients would is contained in the Treaty which is lose the right of deduction and have to capable of having direct effect in the alter their records and tax declarations. internal legal order of the Member States. In the same way the directives concerned with taxation are intended to harmonize the laws of the Member Sutes and not to substitute a Community taxation system for the national systems. It is thus normal to find in those The direct application of Article 13 B (d) directives, alongside ceruin precise and (1). of the directive would mean different mandatory provisions whose uniform taxation for whole series of transactions. implemenution must be ensured, Tax-payers ought not to be left in uncer- provisions the conditions for the tainty as to the tax burden with which implemenution of which are left to the they have to reckon as would be the case discretion of the Member Sutes and if the taxation of the turnover of credit which are, consequently, not intended to negotiators depended on a subsequent receive uniform application. Nor can ruling by the European Court of Justice. uniformity be achieved in the latter cases

The French Government supplements its Directive 77/388 leaves certain options observations with the answer it gave in to the Member States. Whether or not Case 8/81 Becker to a question put by they have been the subject of national the Court relating to the legal value of implementing measures the provisions of the declaration noted by the Council in the directive cannot be directly the minutes of its meeting of 26 June applicable before the courts of the 1978 on the occasion of the adoption of Member States. the Ninth Council Directive on the harmonization of the laws of the Member States relating to turnover taxes which allow certain States to derogate from the period for implementing The French Government moreover Directive 77/388. That declaration is as wonders whether the directive as a whole follows: is not incapable of being directly applicable in the Member States before the adoption of the necessary national measures since the options left to the Member States are so numerous and "The Council observes that the present inseparable from the other provisions. directive cannot affect the vested rights of taxable persons between 1 January 1973 and the entry into force of this directive." Further, direct applicability was implicitly but necessarily denied by the Council when it took the view in adopting the Ninth Directive in relation The French Government challenges the to value-added tax on 26 June 1978 that Commission's view that the Council has it could, after the period for implement- neither implicitly nor necessarily ing Directive 77/388 had expired, extend dismissed the possibility of giving, where the period by one year. appropriate, direct effect to certain provisions of Directive 77/388. It maintains that a simple perusal of the wording of the declaration shows that such cannot be the correct interpretation In any event direct effect cannot be of the Council's intentions. The attributed to Article 13 B and C (b). declaration in no way accords with the Those provisions imply that for the Commission's original proposal and principle of exemption (or option) in bears no trace of the Council's intention respect of transactions carried out by to safeguard vested rights which may credit negotiators to be respected have been acquired before the entry into Member States must on the one hand lay force of Directive 77/388. Moreover if down the condition for the "correct and certain provisions of that directive could straightforward application" thereof and have direct effect the derogation granted on the other hand fix if necessary the by the Council to seven Member States details for the use of the option. Those bv means of the Ninth Directive would

The Government of the Italian Republic also suggests that the question put by the Finanzgericht Hamburg should be In order to determine whether the said answered in the negative. conditions are satisfied in this case the Italian Government considers it necessary to describe by way of a preface According to the Italian Government, the common system of value-added tax although in a general way there can be as outlined in Directive 77/388. no question or directives' having direct effect, it is nevertheless permissible in certain exceptional cases to attribute to The characteristic feature of the system provisions of a directive, not direct is the complete neutrality of the tax in applicability which is exclusively a trade between taxable persons. Such characteristic of regulations, but the neutrality is obtained by reason of the possibility of giving rise to indirect mechanism of deduction and passing on effects in favour of individuals. In the downwards as a result of which it is the case for example of a Member State ultimate consumer who has to bear the which has failed to fulfil its obligations levy in favour of the tax authorities and to implement a directive that State who may not pass any of it on. cannot assert against parties rights or powers under the national law which has not been adapted to the directive and conflicts with it. What is concerned is Under the system the provisions for not however personal rights possessed by exemption do not cease to have effect on individuals which may be considered to application and it is therefore necessary be directly based on the provisions of the to regulate their repercussions on the directive but rather an indirect effect chain of fractioned payments and to residing in the fact that the Member introduce sufficient mechanisms for Sute in default is prevented from adaptation. asserting against parties national provisions which do not comply with the directive. The first problem is to determine whether deduction continues to be allowed also on exempted transactions. This negative and restrictive effect of In that regard, the Italian Government directives with regard to Member States observes that apart from certain which have failed to fulfil their exceptions the Community directives obligations to implement Community law have opted for a negative solution. is moreover subject to definite and precise conditions, namely:

previous residual tax which cannot be discretion with regard to its implemen- deducted and would thus be more tation. heavily burdened than they would have been had there been no exemption. That is one of the reasons for the approach adopted by the directives which is to restria as far as possible the number of The answer could not be different even exemptions. Ultimately it must not be assuming that it were possible to break forgotten that the introduction of an the organic unity of the system and to exemption with the consequent exclusion consider in isolation a single provision of of deduction involves considerable the directive, in particular Article 13 B technical difficulties when an under- (d) 1. That article does not create taking simultaneously engages in taxable sufficiently precise and unconditional and non-taxable transactions, and also obligations. It follows from that pro- has important consequences in respect of vision, according to which exemptions the "instrumental" obligations (account- are granted by the Member Sutes ing, invoicing and so forth) laid upon "under conditions which they shall lay taxable persons. down for the purpose of ensuring the correa and straightforward application of the exemptions and of preventing any possible evasion, avoidance or abuse", that the direaive does not intend exemption to be granted unconditionally, In the view of the Italian Government that is to say in such a way as to create the above considerations enable two the risk of fraud, evasion or abuse. The important statements to be made: Community provision cannot therefore be said to have direa effea before the enactment of the provision of national law which is indispensable to its perfection. They lead first of all to the observation that the common system of value-added tax established by Directive 77/388 constitutes an organic and indivisible whole so that its individual parts have a The Iulian Government observes further meaning only in the context of the that the impossibility of relying, as system. The various provisions contained againn individuals, on a national rule in the directive can in no event be which conflicts with a direaive is subject interpreted as having independent to the condition that the national ruie meaning. puts individuals in a worse situation than they would have been in had the direaive been implemented. Exemption may nevertheless be favourable or unfav- ourable to the person concerned according to the circumsunces as is If reference is made to the directive as an shown by the fact that the direaive has indivisible whole any question of its left it to the Member Sutes whether they possible direct effect can only be allow uxable persons to opt for taxation. answered in the negative since the It is certainly not possible to accept that directive does not create sufficiently the direct effea of a provision of a precise and unconditional obligations but directive depends on the circumsunces leaves the Member States a wide of each particular case. The only

acceptable solution is to exclude in all exemptions. Power to legislate is not cases any direct effect of the provision. granted to the States generally but solely "for the purpose of,ensuring the correct and straightforward application of the The Commission of the European exemptions and of preventing any Communities considers that the question possible evasion, avoidance or abuse". put for a preliminary ruling must be The use of those words clearly shows the answered in the affirmative. aims to be pursued by the Member Sutes. The measures which the said States may adopt are therefore only such as are necessary to achieve those aims, as It recalls that on the adoption of the for example the need to maintain Ninth Directive it had expressly made its separate accounts or additional obli- proposal for extending by one year the gations in respect of declarations or pres- period for incorporating Directive ervation which cannot alter the 77/388 into national law subject to the unconditional and mandatory nature of reservation that "this derogation shall the exemptions. The German authorities not prejudice the effects of the provisions themselves moreover did not consider of Directive 77/388/EEC [that is to say that there was any discretion to qualify the Sixth Directive] which do not require the exemption provided for in Article the adoption of national implementing 13 B (d) 1. measures, if those effects have been produced before the date of notification of the present directive". The Commission is also of the opinion that it is not possible to infer from the Although the Council did not expressly right of option provided for in Article incorporate that reservation in the text of 13 C (b) any argument against -the the Ninth Directive (which provided for possibility of relying directly on the extension) it nevertheless stressed in the provision in Article 13 B (d) 1. declaration in the minutes that "... this derogation . . . cannot affect the vested rights of taxpayers between 1 January 1978 and the entry into force of the Although it is true that the States are Ninth Directive." free to introduce if they wish an additional benefit consisting in the possibility to opt, where appropriate, for It did not therefore rule out that certain uxation, that in no way affects the provisions of Directive 77/388 might unconditional nature of the obligation to have produced effects in national law exempt. The option would have no even before the incorporation of the said meaning if it allowed Member Sutes to directive into national law. decide also whether exemptions would be appropriate. According to the Commission a careful reading of the wording of Article 13 B (d) 1. shows that no discretion is left to Finally the Commission considers that the Member States. A distinction should the opportunity to rely on the exemption be drawn between the obligation to provided for by the directive before its exempt, properly so called, and the transposition into the national law of a measures which the Sutes may take to Member Sute in no way involves any ensure the correct application of the disadvanuge for individuals who still

Ill — Oral procedure The clients of the credit negotiator, too, should not suffer from any disadvantage since even if the tax has been demanded by the negotiator it would be fair to By letter received at the Court Registry allow them to deduct it. That solution on 15 January 1982 the Council of the has moreover been adopted by the European Communities asked to relevant German authorities so that it is intervene in this case. It was allowed to not possible to argue that Article 13 B intervene for the purposes of the oral (d) 1. does not have direct effect because procedure since the written procedure it would involve disadvantages for the had already been concluded. clients of credit negotiators. The Commission, represented by its Legal Adviser, Mr Karpenstein, acting as The Commission proposes that the Agent, and the Council, represented by following answer should be given to the its Legal Adviser, Mr Sacchettini, acting Finanzgericht Hamburg: as Agent, presented oral argument at the sitting on 6 May 1982.

"Article 13 B (d) 1. of the Sixth Council The Advocate General delivered his Directive of 17 May 1977 on value- opinion at the same sitting.

Decision

1 By order of 4 September 1981, which was received at the Court on 18 September 1981, the Finanzgericht [Finance Court] Hamburg referred to the Court for a preliminary ruling under Article 177 of the EEC Treaty a question on the interpretation of Article 13 B (d) 1. of the Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes — Common system of value- added tax: uniform basis of assessment (Official Journal 1977, L 145, p. 1).

6 The Finanzgericht Hamburg before which the matter was brought stayed the proceedings and referred the following question to the Court for a pre- liminary ruling:

"Is Article 13 B (d) 1. of the Sixth Council Directive of 17 May 1977 (77/388/EEC) to be interpreted as conferring on a taxable person, as from the date on which it took effect, a direct legal right to exemption from tax in respect of the transactions referred to therein, even where exemption is (not yet) provided for under national law on turnover tax?"

JUDGMENT OF 10. 6. 1982 — CASE 235/81

7 The plaintiff in the main action did not appear in the proceedings before the Court. Its view was supported by the Commission which argued before the Court to the effect that individuals are entitled to claim the relevant exemption from tax. The Council too, which took part in the oral procedure, supported the plaintiff's view, albeit with certain reservations.

8 On the other hand the Finanzamt, supported by the Governments of the French and Italian Republics expounded a number of arguments designed to show that for the period, namely the tax year 1979, during which the national legal provisions implementing the directive in the Federal Republic of Germany had not yet entered into force, it was not possible to rely on the provision in question.

9 It must be pointed out that the questions raised in this case have already been resolved by the Court in its judgment of 19 January 1982 in Case 8/81 Becker [1982] ECR, which was concerned with the same issue.

On those grounds,

THE COURT (First Chamber)

in answer to the question submitted to it by the Finanzgericht Hamburg by order of 4 September 1981, hereby rules:

As from 1 January 1979 it was possible for the provision concerning the exemption from turnover tax of transactions consisting of the negotiation of credit contained in Article 13 B (d) 1. of the Sixth Directive 77/388 of 17 May 1977 on the harmonization of the laws of the Member Sutes relating to turnover taxes — Common system of value-added tax: uniform basis of assessment — to be relied upon, in the absence of the implementation of that directive, by a credit negotiator where he had refrained from passing that tax on to persons following him in the chain of supply, and the State could not claim, as against him, that it had failed to implement the directive.

Bosco O'Keeffe Koopmans

Delivered in open court in Luxembourg on 10 June 1982.