C-138/86

DIRECT COSMETICS v COMMISSIONERS OF CUSTOMS AND EXCISE

OPINION OF MR ADVOCATE GENERAL CRUZ VILAÇA delivered on 27 January 1988 *

Mr President, 3. These proceedings follow on from 3 Members of the Court, another case already decided by the Court, which also involved one of the parties to these proceedings (Direct Cosmetics) and the Commissioners of Customs and Excise. That case was concerned with the question 1. The London Value-added Tax Tribunal whether or not it was necessary to notify has submitted to the Court of Justice, under the Commission, under Article 17 (2) of the Article 177 of the EEC Treaty, a number of Sixth Directive, of an amendment to English questions for a preliminary ruling on the tax legislation derogating from the basis of interpretation of Article 27 of the Sixth assessment defined in that directive. 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 4. In compliance with the judgment of the tax: uniform basis of assessment, 1 and on Court, which considered the aforesaid the validity of a Council decision which, amendment to be a 'special measure' within pursuant to that article, authorized the the meaning of Article 27 (1) and therefore United Kingdom to adopt for two years a subject to authorization by the Council, the derogating measure to enable certain types United Kingdom notified the Commission of tax avoidance to be prevented. 2 on 15 March 1985 of the scope of the measure which it was planning to introduce and which derogated from the Sixth Directive. 1. Background

request for the matter to be raised by the reference to a direction being necessary 'for Council was made by any of the Member the protection of the revenue'. States or by the Commission itself within two months from the date on which the Member States were informed, the dero­ gation was deemed to have been tacitly 9. By directions of 25 June 1985 and 5 July authorized as from 13 June 1985 in 1985, whose wording (which is identical in accordance with Article 27 (4). 4 both cases) need not be reproduced here, the Commissioners of Customs and Excise applied the aforesaid provision to the appellant companies. 7. Following the grant of that authori­ zation, paragraph 3 of Schedule 4 to the United Kingdom Value-added Tax 1983 provided as follows: 10. The significance of those directions for their addressees is clear if the specific nature of their respective selling schemes is borne in mind. Those schemes are described in the Report for the Hearing and the scheme 'Where — used by Direct Cosmetics Limited had already been referred to in the judgment of 13 February 1985.

DIRECT COSMETICS v COMMISSIONERS OF CUSTOMS AND EXCISE

families, at a price which, according to the 2. The questions submitted for a preliminary appellant company, may be equal to or ruling higher than the price which the latter charges the school.

16. The London Value-added Tax Tribunal stayed the proceedings and referred the following five questions to the Court of 13. It is noteworthy that the agents through Justice for a preliminary ruling: whom Direct Cosmetics Limited sells its products are not liable to value-added tax as their turnover is below the minimum laid down by United Kingdom legislation in '1 . Is a measure, such as that contained in accordance with Article 24 of the Sixth paragraph 3, Schedule 4 of the Directive. Similarly, schools are not liable to Value-added Tax Act 1983, within the value-added tax on the photographs sold to limits allowed by Article 27 (1) of the them by Laughtons Photographs Limited Sixth Directive, or is it wider than is and subsequently resold by them. strictly necessary?

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within the limits of the derogation 18. The first two questions refer to the allowed by Article 27 (1) of the Sixth same general problem (the scope of the Directive or is it wider than is strictly derogation provided for in Article 27 (1) of necessary? the Sixth Directive), the second one dealing in greater detail with certain aspects of the general problem raised in the first one.

3. Can such a measure be applied to taxpayers whose activities fall outside the matters referred to in Article 27 of 19. As for the fifth question, it is closely the said Sixth Directive or outside the terms of the request for authorization or connected with the examination of the first the terms of the actual authorization by two questions, since the exclusion of Article the Council of Ministers? 11. A.1 (a) is the result of the application of a validly authorized derogating measure.

4. Is the decision of authorization of the Council of Ministers invalid or of no 20. A — In asking those questions, the effect for any substantive or procedural national court seeks to ascertain essentially: reason, such as the failure of the Council of Ministers or the Member States to evaluate or to be informed of the fact that the measure was not capable of being evaluated either against (1) whether Article 27 (1) of the Sixth the criteria laid down in Article 27 of Directive permits a special derogating the Sixth Directive or against the measure to be applied in cases of principle of proportionality or against objective tax avoidance in which no the basic principles of the Sixth fraudulent intent on the part of the Directive? traders concerned is shown to exist;

25. B—As is well known, the latter two 21. B—With regard to the first part of the directives, both of 11 April 1967, laid down third question, the answer follows ines­ the basis for harmonizing national legis­ capably, without any need for further expla­ lation concerning turnover taxes in the nations, from the answers to be given to the Member States of the Community. previous questions, if indeed the answer is not already contained in the very wording of the question. The second part of the third 26. The First Directive 5made the adoption question is in fact concerned with the of value-added tax compulsory as from 1 problem of the terms in which, under January 1970 (later deferred to 1 January Article 27 (4), the Council can be regarded 1972) throughout the Community to replace as having tacitly granted authorization for the cumulative taxes that were previously the adoption of the derogating measures. applied in practically all the Member States (excluding France).

22. The fourth question is again concerned with the problem of the conditions of 27. For its part, the Second Directive 6laid validity of the Council's tacit authorizing down some of the — still rather decision. That is a problem which must be flexible — general principles regulating the considered in connection with the other Community's system of value-added tax. questions raised by the national court.

Directive, eighth recital in the preamble emphasized in the fifth recital in the thereto and second paragraph of Article 2). preamble to the First Directive, 'a system of The important point is that the sum of the value-added tax achieves the highest degree value-added tax chargeable at every stage of simplicity and of neutrality when the tax on the value added at each stage must be is levied in as general a manner as possible equal to the amount resulting from the and when its scope covers all stages of application of a single-stage tax at the same production and distribution'. rate chargeable only on the sale of goods by a retailer to the final consumer. Thus, value-added tax may be seen as 'a general tax on consumption exactly proportional to 32. In addition, the 'generalized the price of the goods and services, application' of value-added tax is an whatever the number of transactions which essential element of its financial effec­ take place in the production and distribution tiveness, permitting a substantial revenue to process before the stage at which tax is be assured at standard rates of tax kept charged' (first paragraph of Article 2 of the within reasonable limits (see the fourth First Directive). recital in the preamble to the Second Directive).

DIRECT COSMETICS v COMMISSIONERS OF CUSTOMS AND EXCISE

37. Secondly, the Sixth Directive imposed 41. In addition, the directive laid down a the tax on services and harmonized the list common system of exemptions in Articles 13 of exemptions which the Member States are to 16. However, in practice those authorized to grant. exemptions apply essentially to certain types of transactions that are very difficult or impossible to include in the basis of assessment and to a series of expenses 38. It should be remembered, moreover, whose exemption is justified on weighty that the Sixth Directive pursued another grounds of social policy. immediate objective, namely the estab­ lishment of conditions enabling value-added tax to constitute a basis for calculating the 42. Hence the directive went as far as it Community's own resources. That made it could with regard to the determination of essential to harmonize the basis of the taxable amount, and, conversely, assessment, as a precondition for an provided for the smallest possible number of equitable apportionment of the financial exemptions to the principle of the general burdens between the various Member States. applicability of the tax.

45. Thus, the second subparagraph of Article 4 (4), widening the definition of 40. That is why, in the first place, the taxable person in Article 4 (1), permits the authors of the Sixth Directive were obliged Member States to treat 'as a single taxable to accept certain limits to the harmonization person persons established in the territory of of the tax systems and provided for certain the country who, while legally independent, decisions to be optional (for instance Article are closely bound to one another by 5 (5), (7) and (8), and Article 6 (3) ) or left financial, economic and organizational certain arrangements, either provisionally or links'. definitively, to the discretion of the Member States or the taxable persons of those States (for instance Article 13C, the special scheme for small undertakings provided for in 46. Article 27 (1), with the same end in Article 24, the special schemes for farmers view, provides that 'the Council, acting provided for in Article 25 and the transi­ unanimously on a proposal from the tional provisions of Article 28). Commission, may authorize any Member

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4. Examination of the questions submitted 49. Similarly, the permissibility of special measures 'to prevent certain types of tax evasion or avoidance' must be taken to 54. A—The first question of interpretation constitute a derogation which is not raised by Article 27 is whether that intended to run counter to the reasoning provision permits only the adoption of behind the Sixth Directive but aims instead special measures for combating tax at achieving its objectives as fully as avoidance where there is an intention to possible. escape the tax or whether its scope also extends to cases in which avoidance appears to be an objective consequence of the

50. The point is, basically, that, in the face 7 — See the declaration set out in the minutes of the Council of the difficulties raised by certain specific meeting at which the Sixth Directive was adopted, which is referred to by the United Kingdom in its observations and situations, provision must be made for the which was referred to by the Court in paragraph 26 of its judgment of 10 April 1984 in Case 324/82 Commission v adoption of machinery capable of 'pursuing' Belgium [1984] ECR 1861, at p. 1881.

DIRECT COSMETICS v COMMISSIONERS OF CUSTOMS AND EXCISE

trading practices adopted by the taxable other Romance languages) to that of person. 'fraud', which was the only one referred to in the Second Directive.

60. The English-language version of the Sixth Directive is, it may even be said, 63. Reference may also be made, in support particularly striking in that regard. Whilst of the aforesaid interpretation, to the the wording of Article 27 refers to the declaration mentioned earlier, contained in prevention of 'certain types of tax evasion the minutes of the Council meeting at which or avoidance', the objective referred to in the Sixth Directive was adopted, according the seventeenth recital in the preamble to to which the measures for preventing tax the directive is 'to avoid fraud or tax evasion or avoidance may consist, for avoidance', thereby adding the latter instance, 'in provisions designed to prevent concept (which corresponds to 'evasão a decrease in the taxable amount which the fiscal' in Portuguese and to like terms in Member State considers unjustified'.

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64. That is also the view of the Government 70. I propose to begin by considering the of the Federal Republic of Germany put first of those two aspects. forward in the observations submitted by it in these proceedings.

71. As Mr Advocate General Verloren Van Themaat pointed out in his Opinion in the 65. In my view, therefore, the conclusions 8 first Direct Cosmetics case, the purpose of which the two appellant companies have the various procedures laid down by Article attempted to draw from a comparison 27 is to guarantee that 'no derogations from between the wording of the Sixth Directive the normal system laid down in the directive and that of the Second Directive are thereby (namely in Article 11) are made which do weakened. not meet the criteria laid down in Article 27'.

73. Those guarantees must also apply to national provisions which — like those at 67. B — Having regard to the system estab­ issue in this case — contain, for the benefit lished by Article 27, the validity of a of certain administrative authorities, only a national measure derogating from the general authorization to adopt individual directive must be examined with reference measures that are intended, in particular, to to two distinct aspects. prevent tax evasion or avoidance. It would be unacceptable if, by adopting a purely general authorization enabling the 68. The first aspect is concerned with the competent authorities to derogate from the general system established by the Sixth Council's authorization, which is required by Directive, the Member States avoided Article 27 (1). The procedure described in consideration of their measure in the light Article 27 (2), (3), and (4) (notification of of the criteria laid down by Article 27 and the Commission, provision of information to permitted the adoption of individual the Member States and express or tacit implementing provisions which, not being so authorization) must have been properly considered, might fail to satisfy those complied with. Next, it is necessary to take criteria. into account the terms of the authorization and its relationship with the request.

74. If, moreover, the objectives of the 69. Secondly, the validity of the measure provision in question and the circumstances depends on its compatibility with the in which it must be applied are not very objectives of Article 27 and with the general principles laid down by the Sixth Directive. 8 — [1985] ECR 617, at p. 626.

clear, it is only by considering all those bility, which is the basis of the Council's elements taken together that the conclusion tacit authorization. can be reached that the authorization granted is not a 'blanket authorization' and can therefore be assessed in the light of the criteria laid down by Article 27. 78. Can the conclusion be drawn that the information provided with the notification was such as to enable the Commission and 75. In that regard, I would point out that the Member States to make a compre­ the wording of the contested measure now hensive and informed assessment of the under consideration resulted from the objectives, the scope and the nature of the repeal, in the version previously in force, of measure, and to permit, as the national the phrase 'for the protection of the court asks, the validity of the tacit authori­ revenue', which may be regarded as equi­ zation granted to be recognized? valent to the phrase 'to prevent certain types of tax evasion or avoidance' used in the Sixth Directive. 9That was the amendment which the Court examined in the first Direct 10 Cosmetics case and considered (in paragraph 27 of the judgment) to be of such 79. In that regard, I would point out in the a kind as to have severed any apparent link first place that the notification effected by between the contested measures and the the United Kingdom authorities — which is exceptions laid down in Article 27 (1). set out in the order for reference — not only incorporates the text of the special measure for which authorization was sought but also contains various explanations 76. The power of the Comissioners of regarding the objectives which it pursues, Customs and Excise to derogate from the the origins and history of the legislation in directive having thus been widened, to what question and the circumstances in which the would appear to be an indeterminate extent, measure is to be applied. the Court held (in paragraph 28 of the judgment) that a fresh notification was necessary, under Article 27 (2), in order to enable the Commission and, where appro­ priate, the Council 'to verify whether the 80. The notification refers, in particular, to new measure was still consistent with the the fact that 'in the United Kingdom certain aim laid down in paragraph (1) of that companies, in the field of cosmetics for article'. example, sell their products solely to retail dealers who are not required to be registered for VAT and are therefore outside the tax net. While these companies 77. That was the notification effected by and dealers do not seek to evade payment the United Kingdom on 15 March 1985, of tax, the effect of their marketing and it was on the basis thereof that the structure is that tax on the value added by Commission and the Member States were the dealer to the final consumer is avoided. able to verify the existence of such compati­ Other companies selling similar products in direct competition and selling through 9 — See paragraph 27 of the judgment of 13 February 1985 in normal registered retail outlets are therefore Direct Cosmetics. at a competitive disadvantage because the 10 — Judgment referred to above.

88. The same terminology was used in the English text of the notice of authorization 82. In my view it is reasonable to conclude (85/369/EEC) published in the Official that a notification effected in those terms Journal of 31 July 1985 and would appear contains in substance all the information to have been repeated in two other language necessary to enable the addressees to versions. understand its objectives and its scope and, in case of doubt or disagreement, to ask for the matter to be raised by the Council. 89. The Council detected the error and rectified it by publishing a corrigendum in Official Journal L 93 of 7 April 1987, at 83. The observations submitted by the page 17. However, that error was not Council in these proceedings are to the carried over into the text, published in the same effect. Official Journal, of the fresh grant of auth­ orization to maintain the derogating measures in force for a further two years. 11

92. All the Member States received, 97. It was that tacit authorization which together with the Commission's letter, the was brought to public notice by publication text of the United Kingdom's notification in the Official Journal. setting out the details needed to enable them to understand, notwithstanding the terminological error or mistranslation, the 98. It is impossible, in my view, to arrive at scope of the measure concerned. any conclusion other than that such tacit authorization must inevitably have exactly the same scope and meaning as were attributed to it in the request for derogation 93. I would recall, in particular, that in the submitted by the United Kingdom. aforesaid notification, the United Kingdom authorities expressly pointed out that they were concerned with the situation of under­ takings whose aim was not to escape the tax 99. It would only be possible to alter the but whose commercial organization led to scope of a measure that was notified after the tax being partially avoided. the Council had assessed the notification and refused to grant the authorization sought.

94. Most of the language versions, including the French version, did not, moreover, as has been explained, contain 100. Not only was the matter not raised by the error in question. In addition, in its the Council but also none of the Member letter accompanying the text of the United States subsequently contested — at least in Kingdom's notification, the Commission the observations which they have submitted pointed out that it was tax avoidance 'by in these proceedings — the legality of the virtue of the pattern of distribution' that was procedure in question on the basis of the intended. aforementioned fact.

doubt, request the Court of Justice, under assessment is, according to Article 11. Article 177 of the EEC Treaty, to provide A.1 (a), that such basis must comprise, in them with an interpretation of Community every transaction, the value of the law enabling them to review the legality of consideration obtained by the supplier of the procedure followed, which could be the goods or by the person providing the called in question if, for instance, the infor­ services. Value-added tax is, historically, a mation needed to permit thorough scrutiny consumer tax which is aimed, in principle, of the terms of the derogation sought had at the final consumer of the goods and is been withheld from the Commission or the designed to impose a tax on him which Member States. 13 is commensurate with his expenditure. Hence the taxable amount is, as a rule, the real value of the transaction and not the 103. As we have seen, that was not the presumed or open-market value. case in this instance.

104. D — I now turn to the second of the two aspects which I referred to earlier. 108. For that reason, it is appropriate to ascertain the extent to which each dero­ gating measure departs from the general 105. In their observations in these definition of the taxable amount for proceedings, the two appellant companies value-added tax in order to determine alleged, in the alternative, that the measure whether it does so within limits that are adopted by the United Kingdom was strictly necessary. disproportionate in relation to the objectives which it sought to achieve and for that reason exceeded the limits set by Article 27 (1).

DIRECT COSMETICS v COMMISSIONERS OF CUSTOMS AND EXCISE

110. The United Kingdom argues that, in 115. In the absence of such measures, that those circumstances, retailers are merely the distortion of competition would even taxable person's alter ego, in a scheme for operate as an inducement to undertakings to sales direct to the public. change their trading methods, by using ostensibly independent retailers not liable to tax instead of agents paid on commission. That structural alteration would be brought about by the tax, which would lose its 111. Having regard to the terms in which desirable neutrality. the measure itself is couched, it clearly applies only to cases in which the whole or a part of a taxable person's business (in fact, in the notification mention is made only of the taxable person's exclusive business) 116. The need for special measures is, it consists in supplying persons not liable to may even be said, particularly pressing in tax with goods which they are intended to the case of the United Kingdom in view of sell by retail. the relatively high value of the exemption provided in that country for the benefit of small undertakings.

112. It must be acknowledged that, in those circumstances and in the absence of specially applicable measures, most or all of the goods sold by that taxable person would 117. It may be said in that regard reach the public at a price which excluded that — as the United Kingdom and the the tax normally payable on the value added Commission have pointed out — the to the goods in question at the time when situation under consideration cannot be they are sold by the retailers. equated with that of a taxable person who makes normal sales to small undertakings within the limits of the exemption.

in 1985 a turnover of UKL 330 million, half 124. That description would not appear to of which was in the cosmetics and toiletries cover every type of situation at which the sector. United Kingdom's derogating measure is aimed. It clearly does not cover the situation in which Laughtons Photographs Limited finds itself and which is at issue in the main 120. The conclusion may therefore be proceedings. The schools to which that drawn that the purposes for which the company sells the photographs are inde­ United Kingdom sought authorization to pendent entities and are not closely bound adopt a derogating measure, rather than to the company by links of the kind taking it outside the scope of Article 27, required by the provision in question. support the view that the measure is intended in principle to be in keeping with the general approach taken in the Sixth Directive. 125. It is doubtful whether even the trans­ actions concluded by Direct Cosmetics Limited could be regarded as coming within the scope of the aforesaid provision. 121. (b) In addition, the request for auth­ orization to adopt derogating measures was limited to a period of two years 126. That fact is recognized by the (subsequently extended by a further two Commission, which doubtless discouraged years) and the United Kingdom undertook the United Kingdom authorities from to study in the mean time the possibility of resorting to that solution. The second amending its national legislation in such a subparagraph of Article 4 (4) would appear way as to achieve the same objectives to constitute an exception to, or a dero­ without derogating from the provisions of gation from, the definition of 'taxable the Sixth Directive. person' which is given in Article 4 (1) and is explained, as regards the meaning of the word 'independently', in the first subparagraph of Article 4 (4). 122. (c) Moreover, it has not in my view been demonstrated that other solutions — such as those based on the second subparagraph of Article 4 (4) or 127. It would seem, therefore, that, in so far the second subparagraph of Article as it contemplates the possibility of such an 24 (3) — would always be workable or exception or derogation, the Sixth Directive make it possible in all circumstances to was intended to permit special treatment to achieve the same objectives just as effec­ be accorded to entities which would tively, even where all the preconditions otherwise be regarded as independent therefor were satisfied. taxable persons.

stated that 'in the interests of simplifying impossible for me to express a view in administration or combating abuses (for general terms. In certain cases, that solution example, the splitting up of one undertaking may be more onerous or disproportionate among several taxable persons so that each than the measure actually adopted under may benefit from a special regime) Member Article 27, whilst in others that will not be States will not be obliged to treat as taxable so. persons those whose "independence" is purely a legal technicality'. 133. (d) However, the two appellant companies referred to another problem which is connected with breach of the 129. The companies whose links for the principle of proportionality. That problem purposes of the application of value-added stems from the fact that in the notification it tax were considered by the Court in its is stated that the derogating measure is to judgment in Van Passen v Staatssecretaris van 15 be applied only to companies 'in a Financiën were in the situation described substantial way of business', amongst those above. which operate in the manner described.

130. On the other hand, the agents of 134. According to those two companies, it Direct Cosmetics Limited, who are follows from the vagueness of that employed by others at the places where they expression (which makes it necessary to sell the products, supply their services to the define the scope of the term 'substantial company on a part-time basis during their business') that the authorization is too wide- free time and without being registered as ranging, which reduces the possibility of persons liable to value-added tax. assessing the compatibility of the measure with Article 27.

be subject to review by the competent Belgian catalogue price or that the taking judicial authorities, in order to ensure that into account of any form of price discount its use is confined to the purposes for which or rebate should be excluded in such a the derogating measure was authorized and comprehensive manner'. does not adversely affect taxpayers' rights or contravene any principle which must be upheld. 142. In those circumstances, the Court concluded that 'the measures at issue are disproportionate to the aim in view in so far 138. The fact that the United Kingdom as they depart in a general and systematic legal system ensures sufficient legal way from the rules laid down in Article 11'. protection in that respect has not even been disputed. Moreover, the United Kingdom has stated that the Commissioners of 143. The view may be taken — as it is by Customs and Excise issued instructions that the United Kingdom — that that is not the the measure was to be applied only to case with regard to the measure now under undertakings whose annual turnover for consideration and that it applies only to value-added tax purposes exceeded certain specific selling schemes which lead UKL 50 000, which in any event helped to to an undesirable reduction of the basis of define the framework within which the assessment and result in 'tax avoidance'. discretionary power must be exercised.

144. However, it remains to be determined 139. (e) Therefore, it has not, in my view, whether the solution adopted — namely that been shown so far that the principle of of allowing the value of the transaction in proportionality can be properly relied upon those circumstances to be taken to be 'its in order to suspend the application of the open-market value 1 6 on a sale by contested measures. retail' — resolves all the uncertainty regarding its scope and, consequently, its relationship of proportionality with the prin­ 140. However, the appellants also refer, in ciples laid down by, and the objectives of, support of their view, to the judgment of Article 27 and the Sixth Directive in the Court of 10 April 1984 in Commission v general. Belgium.

in the case of services supplied by a taxable the second subparagraph of Article 11. A.1 person for the purposes of his undertaking, of the directive to the 'open-market value' is within the meaning of Article 6 (3). clearly aimed at situations in which the service, as it is supplied 'for the purposes of [the taxable person's] undertaking', does not have a contractual price. 147. Thus, the directive treats the 'open-market value' of services as 'the amount which a customer at the marketing stage at which the supply takes place would 151. None the less, under the directive, a have to pay to a supplier at arm's length supply of services in those circumstances within the territory of the country at the may be treated by the Member States (in time of the supply under conditions of fair accordance with the consultation procedure competition to obtain the services in provided for in Article 29) as a supply of question.' services for consideration for the purposes of applying the tax 'in order to prevent distortion of competition' which might arise in certain situations (Article 6 (3)). 148. That definition is comparable to that which the United Kingdom legislature adopted in section 10 (5) of the Value-added Tax Act 1983 and which is set out in the United Kingdom's observations. 152. In that case, the only way to determine the basis of assessment is by means of the open-market value, as defined in the second subparagraph of Article 11. 149. Section 10 (2) provides that 'if the A.1. supply is for a consideration in money its value shall be taken to be such amount as, with the addition of the tax chargeable, is equal to the consideration' — a definition 153. As regards the term 'open-market which seems to correspond to the general value' used in the United Kingdom legis­ principle laid down by Article 11. A.1 (a) of lation — both in Schedule 3 of Annex 4 to the Sixth Directive — and section 10 (5) the Value-added Tax Act and in section goes on to provide that: 10 (5) thereof, which it is not appropriate to interpret here — it must be said that, whatever meaning it was intended to have in that act, its use is compatible with the 'For the purposes of this Act the open- objectives of the derogating measure and market value of a supply of goods or with the principles laid down by the Sixth services shall be taken to be the amount that Directive only in so far as it does not would fall to be taken as its value under purport to impose tax on an amount subsection (2) above if the supply were for exceeding the value added along the entire such consideration in money as would be length of the distribution chain as far as the payable by a person standing in no such final consumer. relationship with any person as would affect that consideration'.

162. On the assumption that the agents do not sell the goods at a higher price, the 158. (J) I propose to use the cases of Direct imposition of the tax on a larger amount Cosmetics Limited and Laughtons Photo­ would clearly go beyond what is required by graphs Limited to illustrate the two hypo­ the objectives pursued by the derogating thetical situations, namely compatibility and measure, namely the charging of the tax on incompatibility with Community law of the the value which has actually been added to manner in which the measure is applied. the goods by the time they reach the final consumer.

159. As regards Direct Cosmetics Limited, it is clear from the documents before the 163. In the case of Laughtons Photographs Court that the company began by selling its Limited there would also appear to have products direct to employees and workers in been two successive, somewhat different, factories, hospitals and offices, and then selling schemes.

DIRECT COSMETICS v COMMISSIONERS OF CUSTOMS AND EXCISE

175. In any case, a measure which in the 170. The schools thus played a purely final analysis — on the basis of the 'current' passive role as intermediaries without any or 'open-market' value — needlessly commercial autonomy. charged tax on a non-existent or merely

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presumed basis of assessment would exceed selling schemes such as those described the limits to which it is properly subject. earlier in order to rationalize and reduce costs, and consequently the derogating 176. It must be borne in mind, above all, measures used to deal with such schemes that the value-added tax system is not cannot disregard the characteristics of the designed to prevent undertakings from using transactions involved.

5. Answers to the questions submitted

177. In those circumstances, I suggest that the questions submitted by the national court should be answered as follows:

'1 . Article 27 (1) of the Sixth Directive permits the grant of authorization to the Member States for the adoption of special derogating measures to prevent certain types of tax avoidance, whether or not a fraudulent intention exists;