C-269/86

'Must Article 2 of the Sixth Directive be I shall commence by summarizing the facts interpreted as meaning that the supply of of the first case. In early 1983 Mr Willem amphetamines for consideration within the Mol, a Dutch national, was charged and national territory cannot be subject to arrested for having sold a number of lots of value-added tax inasmuch as such supply is amphetamines. At the same time, the Dutch forbidden by law?' tax authorities served on him an assessment to turnover tax for the period 1 September 1982 to 31 March 1983 on the ground that he had dealt in amphetamines as a trader and that that dealing, albeit unlawful, had to be subject to tax. After bringing an unsuccessful action against that assessment Let us now turn to Case 289/86. The socio­ before the Gerechtshof (Regional Court of cultural association, Happy Family, runs a Appeal), Leeuwarden, Mr Mol appealed to youth centre in Amsterdam in which a the Hoge Raad der Nederlanden (Supreme 'house dealer' sells soft drugs to its Court of the Netherlands). There he argued members, part of the proceeds accruing to that since such dealing was anti-social and the association. House dealers' activities are punishable by law it could not give rise to a to some extent institutionalized. Under the liability to tax. guidelines issued by the Dutch public pros­ ecutors' office on the investigation and prosecution of offences against the Opiumwet (Opium Law 1928) a house dealer is defined as a 'dealer in hemp The Hoge Raad considered that in order to products who, with the trust and protection resolve the dispute it was necessary for of those in charge of a youth centre, obtains Article 2 (1) of the Sixth Council Directive sole permission to deal in that centre'. In (77/388/EEC) of 17 May 1977 on the theory, house dealers may be prosecuted; harmonization of the laws of the Member however, since it has established other

Clearly the question put by the Hoge Raad corresponds to the first of the questions put The tax authorities also served a tax by the Gerechtshof. This, together with the assessment upon Happy Family in respect of identical subject-matter of the two cases, the period 13 September 1984 to 31 March justifies their being considered together. Of 1985. Happy Family appealed against that course, I shall consider the Gerechtshof's assessment to the Gerechtshof (Regional second and third questions separately (in Court of Appeal), Amsterdam, on the sections 5 and 6 below). ground that according to the Court's judgment of 28 February 1984 (Case 294/82 Einberger v Hauptzollamt Freiburg Tinberger II' [1984] ECR 1177) profits on In both proceedings the French, German drug trading are not liable to tax; by and Netherlands Governments and the judgment of 28 October 1986 the national Commission of the European Communities court referred the following questions for a have lodged written observations; in preliminary ruling: addition, the Netherlands Government and the Commission took part in the hearing. In Case 289/86 Happy Family lodged written observations and took part in the hearing, '1 . Following the judgment of the Court of whereas in Case 269/86 Mr Mol merely Justice of the European Communities of took part in the oral proceedings. 28 February 1984 in Case 294/82 Einberger v Hauptzollamt Freiburg must Article 2 (1) of the Sixth Council Directive be interpreted as meaning that upon the supply of narcotic drugs within 2. For the sake of a better understanding the territory of a Member State no of the issues it is worthwhile calling the turnover tax arises either? relevant Community legislation to mind. It can be reduced to Articles 2 (1) and 4 (1) of the Sixth Directive. Article 2 (1) provides that 'the supply of goods or services effected 2. If Question 1 must be answered in the for consideration within the territory of the affirmative, does that answer apply to country by a taxable person . . .' is to be the supply of all kinds of narcotic drugs, subject to value-added tax. Article 4 (1) including the supply of hemp products? provides that '"taxable person" shall mean any person who independently carries out in any place any economic 3. If Question 2 must also be answered in activity . . .whatever the purpose or results the affirmative, can the fact that a policy of that activity'. of restraint pursued by the competent judicial authorities as regards the pros­ ecution of offences makes it possible in certain circumstances to provide As far as illegally imported drugs in prohibited supplies of hemp products be particular are concerned, reference should a ground for taking a different view of also be made to four judgments of the

Court, of which three concern the liability activity is subject to value-added tax (the ment Netherlands, France); (b) the objective of of such goods to customs duties ( judg of 5 February 1981 in Case 50/80 Horvath v value-added tax, which is to impose a Hauptzollamt Hamburg Jonas [1981] ECR comprehensive tax on final consumption 385, and the judgments of 26 October 1982 within the territory of the country and takes in Case 221/85 Wolf v Hauptzollamt no account of the possible unlawfulness of Düsseldorf [1982] ECR 3681, and in Case the transaction whereby the consumer 240/81 Einberger v Hauptzollamt Freiburg obtains the product (Federal Republic of 'Einberger I' [1982] ECR 3699) and one Germany) and (c) the difference between whether the unlawful importation of drugs the event which caused the tax to arise in can give rise to liability to turnover tax these two cases (supply within the territory) (judgment of 28 February 1984 in Case and in the case (importation) in which the 294/82 Einberger II, cited above). All those Court held that no liability to tax arose. judgments enshrine the same principle: unless they are confined within controlled channels and are intended for use for medical or scientific purposes, there is an According to the second set of arguments, absolute ban on the importation and when the judgment in Einberger II is applied marketing of drugs in the Community; to the facts in question it (d) ends up by hence, if drugs are discovered or are unde­ giving preferential tax treatment to the tected by the authorities, they cannot give illegal market over the legal market and, rise to liability to customs duty or to tax within the context of the illegal market, to (see the judgment in Einberger II, para­ dealing in drugs over the 'black economy' graphs 14, 15 and 16). or dealing in arms or pornography (Netherlands, Germany); (e) by adversely affecting the harmonization of taxable transactions which is pursued by the 3. Unlike the cases which the Court has directive, falls within legal systems which considered hitherto, these cases are subject sales of drugs to different rules. It is concerned, not with the unlawful manifest from the third question put by the importation of drugs, but with the supply of Gerechtshof that conduct which is drugs for consideration within the territory prohibited and strictly repressed in some of a Member State. In essence, what the two Member States is expressly tolerated in Dutch courts are now asking is whether the others (France). principle set out above is applicable thereto.

importation and marketing to which such only as the result of an event or legal act substances are subject in all the Member which the law recognizes as causing a States as a result of the international person to have dominion over a thing. commitments which they have assumed Finally, although the directive does makes a (Single Convention on Narcotic Drugs, distinction as regards taxable events between New York, 30 March 1961, and Convention import value-added tax and value-added tax on Psychotropic Substances, Vienna, 21 charged within the territory of the country February 1971, in United Nations Treaty (Article 2 (1) and (2)), it is also certain that Series, Volumes 520 and 1019, pages 151 the objectives of the two taxes coincide and,

are equally unacceptable. The first argument was also put forward in the proceedings which resulted in the judgment in the Einberger II case, and I shall respond to it, as I did then, by observing that it can be assessed only from the ethical and political Having said that, let us turn to the point of view: legally it is of no avail arguments put forward by the Member because the wealth acquired by the States which have submitted observations. dealer — that is to say the value of the Their arguments based on the wording or drugs sold — is merely de facto since it is the objectives of the directive seem, in my not the result of a 'transfer' within the view, to be generally very weak. For meaning of Article 5 ( 1 ), cited above, (for a instance, it is obvious that by using the term similar argument see Berliri, Princìpi di 'economic activity' or by setting out its diritto tributario, Milan 1972, p. 102). intention to tax 'final consumption', the Neither can it be said that if drug dealing is directive refers to goods which are inte taken outside the scope of value-added tax, grated into the economy of the Community it will be put in a privileged position and hence excludes from its field of compared with trading in weapons or application products which do not satisfy pornography. Albeit within narrow limits,

MOL v INSPECTEUR DER INVOERRECHTEN EN ACCIJNZEN

In other words, for the present it is possible only to observe hoc iure utimur. 6. The third question raises more complex problems. The Gerechtshof asks the Court whether if sales of hashish are held not to be liable to value-added tax must a different view of the question be taken where the 5. Consequently the Hoge Raad's national judicial authorities forgo pros question and the Gerechtshof's first question ecuting dealers in certain circumstances. should be answered as follows: in so far as sales of drugs within the territory of a Member State take part outside legal Community channels they cause no liability to value-added tax to arise.

products. Netherlands according to which those limits are thin if not even non-existent: thus, far from stopping outside youth centres and in cases of blatant dealing, the authorities' permissiveness even tolerates the appearance on the signs or in the windows of numerous It is clear from the national court's coffee shops in the main Dutch cities of a judgment that the proceeds whose liability picture of a leaf of Indian hemp. The to value-added tax is under discussion arise Commission infers from that state of affairs as a result of the sale of hashish, that is to that 'albeit distributing an unlawful product, say of a substance which, according to the the taxable person carries out transactions international rules cited in section 3 above which are regarded as lawful'. Consequently (Article 2 (1) of the 1961 Convention and they are liable to value-added tax.

7. In the light of the above considerations I propose that the Court should answer the questions put by the Hoge Raad der Nederlanden by judgment of 29 October 1986 in the proceedings between Willem Mol and Inspecteur der Invoer­ rechten en Accijnzen, Leeuwarden, and by the Gerechtshof, Amsterdam, by judgment of 28 October 1986 in the proceedings between Vereniging Happy Family and Inspecteur der Omzetbelasting, Amsterdam, in the following terms:

'Article 2 (1) of Council Directive 77/388 of 17 May 1977 must be interpreted as meaning that supplies effected for consideration within the territory of a Member State of drugs outside economic channels strictly controlled by the competent authorities for use for medical and scientific purposes are not liable to value-added tax.'

That conclusion is unaffected by the fact that the drugs sold are hemp products and that, in pursuing a policy of restraint, the relevant judicial authorities allow prohibited sales of such products to take place in certain circumstances without their giving rise to criminal consequences.