C-3/86
ECLI:EU:C:1988:89
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COMMISSION v ITALY
OPINION OF MR ADVOCATE GENERAL LENZ delivered on 24 February 1988 *
Mr President, flat-rate compensation percentages which Members of the Court, are applied to the price of the agricultural products and agricultural services supplied by the flat-rate farmers to taxable persons other than a flat-rate farmer. This compen sation excludes all other forms of deduction A — The facts of input tax. The flat-rate compensation percentages are based on the macro- economic statistics for flat-rate farmers alone for the preceding three years. They 1. The proceedings under Article 169 on may not have the effect of obtaining for which I today give my opinion relate to the flat-rate farmers refunds greater than the question whether the Italian Republic, the value-added tax charges on inputs. Member defendant, correctly applied a specific States must notify the Commission of the value-added tax scheme intended for certain flat-rate compensation percentages before farmers. applying them.
2. Article 25 of the Sixth Directive on value-added tax 1 (the 'Sixth Directive') gives Member States the power to apply a 4. The general flat-rate scheme for farmers specific regime to farmers in respect of introduced in Italy in 1979 by Article 34 of whom the operation of the normal Decree No 633 of the President of the value-added tax scheme or, where appro Republic of 26 October 1972 instituting priate, the simplified scheme, would value-added tax in order in particular to encounter difficulties. The farmers give effect to the Sixth Directive, applies to concerned, referred to in the Sixth Directive all goods and services. It does not therefore as 'flat-rate farmers', receive, pursuant to include the restriction contained in Article Article 25 (1), (3) and (6), flat-rate 25 (5) of the Sixth Directive which auth compensation for the value-added tax orizes the flat-rate scheme only for goods charged on goods and services supplied to and services supplied to taxable persons them, which is paid either by the taxable other than flat-rate farmers. Flat-rate person to whom they supply goods or compensation amounts were also introduced services, or by the public authorities. in 1979.
3. In order to implement this scheme, Member States fix, where necessary, the 5. When these flat-rate compensation * Translated from the German. percentages were increased in 1981 in 1 — Sixth Council Directive (77/388/EEC) of 17 May 1977 on the harmonization of the laws of the Member States respect of the products in question, namely relating to turnover taxes — Common system of beef, pork and fresh milk, the Commission value-added tax; uniform basis of assessment (OJ L 145, 13.6.1977, p. 1). of the European Communities objected to
OPINION OF MR LENZ — CASE 3/86
the fact that the Italian scheme included incompatible with Article 25 (3) and (5) of supplies made by flat-rate farmers to other the Sixth Directive, Council Directive flat-rate farmers. It also informed Italy that 77 / 388 / EEC of 17 May 1977, as regards its it considered the compensation rate of unlimited nature and the percentages of 15 % 2to be too high. Finally, it challenged value-added tax refunds paid to producers the method of calculation used in order to in respect of beef, pork and fresh milk, the determine the Italian compensation rates, as Italian Republic has failed to fulfil its obli it did not cover the requisite period of three gations under the EEC Treaty and the Sixth years and used macro-economic statistics Directive; relating to the whole of Italian agriculture and not to flat-rate farmers alone, as required by the Sixth Directive. Those complaints were repeated in the reasoned opinion of 25 March 1985. Order the defendant to pay the costs.
6. The defendant did not formally state its position within the period laid down by the 9. The defendant submits that the action applicant in the reasoned opinion, or before should be dismissed and the applicant this action was brought. ordered to pay the costs.
7. Within the framework of checking procedures relating to the collection of the 10. The defendant maintains that Article Communities' own resources, whereby the 25 (8) of the Sixth Directive authorizes the transactions carried out by flat-rate farmers Italian flat-rate compensation scheme to be must be taken 'into consideration under applied over and above the terms of Article Article 5 of Council Regulation No 2892/77 25 (5) thereof. It considers that the level of of 19 December 1977, 3 the Italian auth flat-rate compensation percentages is orities acknowledged that the flat-rate justified. It bases them on the macro- compensation had entailed, in respect of the economic statistics for the whole of Italian years 1979 to 1982, over-compensation of agriculture, which must, however, be the value-added tax charged on inputs. corrected to take account of the specific situation of flat-rate farmers. It rejects a number of allegations which, as the applicant only made them in its reasoned 8. The applicant claims that the Court opinion and in the application, but not in its should: letter of formal notice, are said to be inad missible.
Declare that, by introducing and main taining in force a flat-rate scheme which is
11. At the Court's request, the parties gave 2 — It was however reduced to 14% by Ministerial Decree of 25 February 1983. further information. In particular, the 3 — Council Regulation No 2892/77 of 19 December 1977 defendant produced the following macro- implementing in respect of own resources accruing from value-added tax the Decision of 21 April 1970 on the economic statistics relating to flat-rate replacement of financial contributions from Member States farmers alone concerning final production by the Communities' own resources (OJ L 336, 27.12.1977, p. 8). and value-added tax charged on inputs:
COMMISSION v ITALY
For the years 1978 to 1980 the final also includes goods and services supplied to production (in million lire) reached flat-rate farmers; 5 193 200, 6 092 400 and 7 129 300 respectively, and the VAT on inputs (in million lire) reached 329 500, 423 600 and 537 300 respectively. Comparing the the flat-rate compensation percentages for value-added tax charged on inputs with the beef, pork and fresh milk are excessively equivalent final production, one arrives at high. the figures of 6.34, 6.95 and 7.54% respectively.
1. The macro-economic statistics used
12. I will revert to the other arguments of the parties when necessary during the course of this opinion. It should, however, 14. The defendant does not dispute that it be stated that a large number of the used macro-economic statistics relating to questions raised, in particular as regards the whole of agriculture and did not confine indirect evidence of over-compensation of the statistics to figures relating to flat-rate the value-added tax charged on inputs, have farmers. After seeking initially to justify its been dealt with thanks to the information position by pointing to the unavailability of provided by the defendant at the Court's appropriate statistics relating to flat-rate request. For the rest, I refer to the Report farmers alone, it did however produce, at for the Hearing. the Court's request, the macro-economic statistics for flat-rate farmers envisaged in the Sixth Directive.
B — Analysis
15. The applicant's complaint is therefore well founded. 13. The applicant is thus alleging that the defendant has failed to comply with the Sixth Directive and hence with its obli gations under the EEC Treaty in three respects : 2. The sphere of application of the flat-rate scheme
the flat-rate compensation percentages are based on erroneous statistics since they are 16. It is not disputed that the defendant's derived from macro-economic statistics flat-rate scheme goes beyond the flat-rate relating to the whole of agriculture and not scheme provided for in Article 25 (5) of the to statistics calculated in respect of flat-rate Sixth Directive, as it is also applicable to farmers alone; goods and services supplied to flat-rate farmers. The question arises therefore whether the scheme provided for in Article 25 (5) is exhaustive, or whether an the sphere of application of the flat-rate extension of the flat-rate scheme may be scheme in question is too wide because it justified under Article 25 (6), (7) and (8).
OPINION OF MR LENZ — CASE 3/86
17. Under Article 25 (8) of the Directive, 19. It should therefore be held that the the flat-rate compensation for all supplies of application of the flat-rate scheme cannot agricultural products and agricultural go beyond the cases mentioned in Article services other than those covered by Article 25 (5) of the Directive. The applicant's 25 (5), is deemed to be paid by the complaint that the defendant's flat-rate purchaser or customer. The terms used do scheme infringes this principle is therefore not enable this deeming provision to be well founded. clearly understood, as is demonstrated by the fact that the applicant interpreted them differently in the reasoned opinion and the application, on the one hand, and in the reply, on the other. It first argued that 3. The amount of the flat-rate compensation Article 25 (8) applied only to cases where percentages for beef, pork and fresh milk the flat-rate scheme was permissible but ended up by arguing that this provision applied to situations unrelated to the flat-rate scheme. In the case of goods or services supplied to other flat-rate farmers 20. The applicant alleges that the defendant or to non-taxable persons, it was not fixed flat-rate compensation percentages necessary to apply the flat-rate compen which were too high, thereby over-compen sation percentages since, under Article sating for the value-added tax charged on 25 (8) of the Sixth Directive, payment of inputs and granting to flat-rate farmers a the compensation is deemed to be made in subsidy contravening Article 25 (3) of the the payment by the purchaser of a global Sixth Directive. price. As such purchasers are not taxable persons, it would be superfluous to charge them a flat-rate amount, as they would not be able to deduct the tax paid on inputs.
21. As the defendant undeniably did not adhere to the method of calculation indicated in Article 25 (3) of the Sixth Directive for fixing the flat-rate compen sation percentages on the ground that macro-economic statistics relating to 18. This argument of the applicant seems to flat-rate farmers alone for the three me to be convincing, especially as it is preceding years were not available, the confirmed by another line of reasoning. As, applicant was only indirectly able to form under the terms of the seventh subparagraph an idea of the amount of such percentages of Article 25 (2), the flat-rate compensation which was actually justified. Thus, the percentages are fixed by Member States in applicant came to the overall conclusion such a way as to enable flat-rate farmers in that flat-rate compensation of only 7 % was the case specified in Article 25 (5) to benefit justified rather than 14%. from flat-rate compensation for the value-added tax charged on inputs, there is no further scope for the application of flat-rate compensation percentages, since otherwise there would be over-compen 22. The defendant sought to justify the sation of the value-added tax charged on amount of the flat-rate compensation inputs. That is, however, not permitted by percentage by the fact that, in the first Article 25 (3) of the Sixth Directive. place, the macro-economic statistics for the
COMMISSION v ITALY
whole of the agricultural sector in question which they have paid on goods and services had to be corrected by reason of the specific purchased by them for their holdings in so structure of flat-rate farming, consisting of far as this tax would be deductible under small farms and family businesses. It also Article 17 of the Sixth Directive by a farmer relied in particular at the hearing, on Italy's subject to the normal value-added tax low rate of self-sufficiency as regards the scheme. Such compensation is paid in products in question and the difficult accordance with the method opted for by economic situation of the farmers the defendant under Article 26 (6) (a) of concerned. the Sixth Directive in such a way that the flat-rate farmer, when he supplies the goods and services mentioned in Article 25 (5) of the directive, invoices to the buyer the flat-rate compensation percentage fixed by 23. Although it is not for the Court in these the State and keeps it for his own account. proceedings to calculate the correct amount The purchaser is then entitled to deduct the of the flat-rate compensation percentage, it flat-rate compensation paid to flat-rate does seem to be necessary to determine its farmers as an input tax, when he pays his amount in a sufficiently reliable manner in own value-added tax. order to be able to assess whether the percentage applied by the defendant is in fact too high.
27. Since the flat-rate compensation is designed to neutralize the value-added tax 24. As the defendant has produced, at the charged on inputs and must be operated on Court's request, additional figures, which the basis of the transactions referred to in are not, however, entirely exhaustive, it is Article 25 (5), only two statistics are no longer necessary to assess the indirect decisive in calculating the correct flat-rate evidence adduced by the applicant, or even compensation percentage: The total amount to consider the defendant's argument to the of value-added tax charged on inputs and effect that certain evidence adduced by the the sum total of the transactions referred to applicant was inadmissible because it was in Article 25 (5) of the Sixth Directive. not contained in the applicant's letter of formal notice.
28. But a difficulty may arise in the context of the application of this method of calcu 25. Examination of the at first sight lation which is connected with the infor somewhat complicated scheme resulting mation which the defendant has given at the from the combination of Article 25 and Court's request. It was asked to produce Annex C of the Sixth Directive reveals that macro-statistics of flat-rate farmers in the the purpose and technique of the method of sector concerned. It supplied information calculation originate from the following relating to inputs and outputs, but for final considerations. production it gave the same figures as for outputs. It has provided no additional infor mation as to whether, and if so in what amount, transactions were carried out which 26. The aim of the scheme is to compensate do not fall within Article 25 (5) of the Sixth all flat-rate farmers for the value-added tax Directive. In the calculation to be carried
OPINION OF MR LENZ — CASE 3/86
out in this respect, any transactions not flat-rate compensation for those years is falling within Article 25 (5) must conse 6.34, 6.95 and 7.54% respectively or, quently be left out of account, particularly weighted over the three years, 7.007%. as the defendant has not challenged this method of calculation which the applicant 30. It may be that these percentages are also used in its observations on the slightly too low, if there exist transactions defendant's replies. not mentioned by the defendant which do not fall within Article 25 (5) of the Sixth Directive. However, the flat-rate compen 29. If the statistics on outputs supplied by sation fixed by the defendant at 14% is the defendant for the years 1978, 1979 and clearly too high in relation to the figures 1980 are now compared with the overall calculated. The applicant's submissions on value-added tax charged on inputs, the this point too are, therefore, well founded.
C — Conclusions
31. Consequently, I suggest that the Court's decision should be as follows:
(1) By establishing and maintaining in force for flat-rate farmers, a flat-rate scheme whose sphere of application is too wide and whose flat-rate compen sation percentage is too high for beef, pork and fresh milk in contravention of Article 25 (3) and (5) of the Sixth Council Directive (77/388/EEC of 17 May 1977) the Italian Republic has failed to fulfil its obligations under the EEC Treaty.
(2) The Italian Republic should bear the costs.