C-231/87

3. Before the national courts, namely the Commissione tributaria di secondo grado (Tax Appeals Board) (Case 231/87) and the In any case, these bodies shall be considered Commissione tributaria di primo grado taxable persons in relation to the activities (First Instance Tax Board) (Case 129/88), both of Piacenza, the local authorities 1 — Sixth Council Directive (77/J88/EEC) of 17 May 1977 on the harmonization of the laws of the Member States relating to taxes — Common system of value-added tax * Original language French uniform basis of assessment (OJ ľ 145. 13 6 1977. p I)

OPINION OF MR MISCHO — JOINED CASES 231/87 AND 129/88

6. Before considering those questions in the order in which they were referred to the Court, let me go on to point out that the preliminary observation of the Italian 8. It should be noted that Article 4(5) Government to the effect that the dispute in is built in 'tiers', so to speak, proceeding the main proceedings in Case 231/87 is not by exceptions and counter-exceptions. concerned with value-added tax but with 2 — See in particular, lhe judgments of 14 July 1988 in Case income tax and that, therefore, a decision is 298/87 Smanor [1988] ECR 4489, paragraph 9 and of 29 not 'necessary' to enable the national court September 1987 in Case 126/86 Giménez Zaera v Instituto nacional de la seguridad social [1987] ECR 3697, to 'give judgment' (see the terms of Article paragraph 7.

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13. The fact that the first subparagraph lay down in detail the quantitative limits does not indicate precisely what those ac resulting from them that Questions 4 and 5 tivities are makes no difference. That in Case 231/87 and Question 2(a) and (d) concept is part of a provision of Community in Case 129/88 are concerned. law the interpretation of which cannot be left to the discretion of each Member State. 4 9. In Case 8/81 Becker v Finanzamt Münster-Innenstadt, the Court was called upon to rule on the direct effect of a provision of the Sixth Directive, namely 14. However, the question is whether, Article 13B(d)l. notwithstanding the exceptions which follow, the rule is unconditional.

15. However, I also share the Commission's opinion, based in particular on the judgment 11. That is valid not merely when the in Marshall, 5 according to which the rule provisions of a directive have not been given effect at the expiry of the period prescribed 4 — Sec, by way of precedent, in regard to the term for its implementation but also where a 'consideration' contained in Anicie 8(a) of the Second Directive, the judgment of the Court of 5 February 1981 in Member State has not correctly Case 154/80 Staatssecretaris van Financien v Coöperatieve implemented a directive. 3 Aardappelenbewaarplaats [19811 ECR 445, paragraph 9. Sec also, in regard to the concept of 'tax avoidance' as contained in Article 27(1) of the Sixth Directive, the judgment of the Court of 12 July 1988 in Joined Cases 138 3 — Sec, on that point, in addition to paragraph 20 of Becker, and 139/86 Direct Cosmetici Ltd anil Laitghtons Photograph the judgments of 26 February 1986 in Case 152/84 Ltd v Commissioners of Cintomi and Excne [1988] ECR Marthallv Southampton and South-Welt Hampshire Area

OPINION OF MR MISCHO —JOINED CASES 231/87 AND 129/88

19. It may therefore in any event be 22. I consider that in such a case, a local concluded that Article 4(5) may be relied on authority could not plead the absence of by a body governed by public law in support distortions of competition at local level as a of a plea that a specific activity engaged in basis for seeking a declaration in the courts by it can under no circumstances come that the rule adopted by the Member State within the scope of the exceptions provided is incompatible with the directive and must for in the second and third subparagraphs of be set aside. A Member State cannot be Article 4(5) and must therefore qualify for obliged to provide for derogations from its

UFFICIO DISTRETTUALE DELLE IMPOSTE DIRETTE DI FIORENZUOLA D'ARDA AND OTHERS v COMUNE DI CARPANETO PIACENTINO AND OTHERS

legislation in order to take account of example, the annual turnover of a local special local situations. It has a discretion in authority in respect of water supply). The that regard. criterion of the negligible scale of the activity could therefore lead to different situations in different local authority areas.

23. Could a local authority plead the absence of significant distortions of compe­ tition at the level of the country as a whole? 27. However, what is the situation if a Here again I am of opinion that the State Member State totally disregards that has a discretion in deciding the point from provision of the directive, that is to say, if it which a distortion of competition fulfils that simultaneously fails to adopt the condition. It might consider that the negligible-scale criterion, as such, in its distortion is sufficiently significant in certain legislation, to exclude from liability to places to justify making the activity in taxation specifically designated activities question subject to VAT in the entire which it regards as negligible or to lay down country. a threshold in respect of the activities listed in Annex D?

OPINION OF MR MISCHO —JOINED CASES 231/87 AND 129/88

it to be relied on by bodies governed by court wishes to know whether the activities public law before the national courts even if in which bodies governed by public law the State has been at fault in totally disre­ engage directly and exclusively in the garding that component of Article 4(5) exercise of their powers under public law when transposing the directive into its constitute : national law. If that indeed has been the case, it is for the Commission, if necessary, to bring an action against the Member State in question for failure to fulfil its obli­ (i) activities engaged in as public auth­ gations. orities,

30. Consequently, I propose that the reply (ii) which may in no circumstances give rise to the first question referred to the Court in to liability to VAT. both cases should be as follows:

33. I will therefore consider in turn what 'Article 4(5) of Directive 77/388 may be are the criteria which make it possible to relied on by a body governed by public law determine the meaning of the expression before the national courts in opposition to 'activity engaged in as a public authority' the application of a national provision (Section A) and in which cases such an making it subject to VAT in regard to an activity necessarily comes within the scope activity which is not listed in Annex D to of the rule of treatment as a non-taxable the directive and the pursuit of which is person for VAT purposes as laid down in reserved exclusively for bodies governed by the first subparagraph of Article 4(5) public law.' (Section B).

35. It follows, as a secondary consideration, 'activities engaged in as public authorities', from that statement of the Court that the the latter concept also covers other types of fact that an activity is engaged in directly by activity. The concepts of 'activities or trans­ the local authority itself does not of itself actions engaged in as public authorities' and lead to the conclusion that it is part of the 'activities engaged in pursuant to powers local authority's specific duties as a public vested [in a body] as a public authority' are authority. (In my view, activities engaged in not in fact synonymous. through municipal undertakings must, so long as they are pursued in the name and on behalf of the local authority, also be included among the activities 'engaged in 40. That follows clearly from the travaux directly'.) préparatoires for the Sixth Directive. In its commentary on Article 4 in the presentation which it made of its proposal for the Sixth Directive, 8the Commission stated that 36. On the other hand, activities engaged in by a local authority pursuant to 'powers vested in it as a public authority' undoubtedly form part of its specific duty as 'persons governed by public law must be a public authority. What does that mean? regarded as taxable persons in so far as they engage in economic activities which may be separated from the concept of public authority, that is to say, activities which could be engaged in by persons governed by 37. Like the Commission, I would suggest private law without damaging the funda­ that the Court adopt in that regard the defi­ mental powers and authority in regard to nition proposed by Mr Advocate General general administration, justice, or national Mancini in his Opinion in Case 307/84 security and defence of States, provinces, Commission v French Republic [1986] ECR local authorities and other bodies governed 1725, at p. 1732, namely that that concept by public law'. refers to activities which involve 'acts of will which affect private individuals by requiring their obedience or, in the event of dis­ obedience, by compelling them to comply'. 41. However, Article 4(5), as the Commission proposed it, was different from the version finally adopted. It was worded as follows: 38. Powers vested in a body as a public authority are exercised in concrete terms by authorizations, licences, permits, conces­ sions, registrations, issue of certified copies, 'States, regional and local government auth­ penalties for failure to comply with laws or orities and other bodies governed by public regulations, etc. law shall not be considered taxable persons in respect of the activities in which they engage as public authorities. However, when they engage in the transactions referred to in paragraph 1, they shall be 39. Although 'activities engaged pursuant to powers vested [in a body] as a public 8 — Bulletin of the European Communities — Supplement 11/77,, authority' therefore constitute in all cases p9

43. It must therefore be concluded that by adopting the version of Article 4(5) now in force, the Council deliberately abandoned that clear distinction and gave the concept of 'activities or transactions engaged in 46. The local authority of Rivergaro put as public authorities' a wider meaning, forward the criterion of the purpose to be including activities other than merely those achieved. However, at the hearing, the falling under the fundamental powers of the Commission rightly pointed out that in its public authority in the areas of general judgment in the 'notaries and bailiffs' case, administration, justice or national security cited above, the Court decided that the term and defence. The Council thus opted for an economic activities is 'objective in character, intermediate solution between, on the one in the sense that the activity is considered hand, the extreme position of the per se and without regard to its purpose or Commission, which sought to make all the results' (paragraph 8). That must also apply economic activities of bodies governed by to an economic activity engaged in by a public law liable to VAT and, on the other public body in its capacity as a public 10 hand, the second VAT Directive, under authority. Practically any activity engaged in which the Member States were entitled to by a local authority pursues an objective in exempt bodies governed by public law from the public interest, including the supply of VAT in respect of such activities (see the water or the provision of a transport network. However, the third subparagraph 9 — Bulletin of the European Communities-—Supplement 11/73, of Article 4(5) and Annex D provide that in p. 36. respect of such activities, local authorities 10 — Second Council Directive (67/228/EEC) of 11 April 1967 are taxable persons. On the other hand, on the harmonization of legislation of Member States concerning turnover taxes — Structure and procedures for among the exemptions provided for in application of the common system of value-added tax (OJ, English Special Edition 1967, p. 16). Article 13 is to be found a considerable

number of activities which may be engaged opment Council, Advocate General Sir in also by public bodies (see Section Gordon Slynn considered that there was a A(l)(b), (g) and (h)) in the public interest in link between the concepts of taxable trans­ order to satisfy essential individual" or action and taxable person in the sense that 12 public needs (subparagraph (i)). The last 'for there to be liability to tax there must be subparagraph of Article 4(5) merely permits both the taxable transaction and taxable 3 the Member States to regard such activities persons'. ' However, he pointed out that as being engaged in as public authorities but they are 'distinct concepts' (p. 7 of the does not require them to do so. roneoed text) and, further on, he emphasized their autonomous nature and stated that if, as he had concluded, the transactions in question did not constitute 47. I am also not convinced that the the supply of services for consideration, reference to the judgment of the Court of 8 'then there is no liability to VAT even if the March 1988 in Case 102/86 Apple and Pear person involved in what has been done is a Development Council [1988] ECR 1443, taxable person' (p. 18 of the roneoed text). made by the Commission in its written observations in Case 129/88 in support of the criteria which it put forward in Case 231/87, is necessarily relevant to this case. 50. Furthermore, contrary to what appears to be the Commission's view, I do not believe that it was the mandatory, that is to 48. Apple and Pear Development Council say, not contractual but statutory, nature of was concerned with the interpretation of the charges in question nor even the fact Article 2 of the Sixth Directive in order to that the amount thereof did not reflect the determine whether the exercise by the economic value of the services provided Development Council of functions assigned which was the decisive factor in determining to it by law and the fact that it imposed an the Court's decision. On the one hand, it annual charge on its members for the can be seen from the second part of purpose of enabling it to meet adminis­ paragraph 15 of the judgment that it was trative and other expenses incurred or to be not because the individual producer was incurred in the exercise of such functions obliged to pay the charge but because he constitute in 'the supply of. .. services had to pay it 'whether or not a given service effected for consideration', that is to say, of the Development Council confers a transactions which are taxable within the benefit upon him' that the Court concluded meaning of the said article. In these cases, that there was no direct relationship the Court is being asked to interpret Article between the service rendered and the 4(5) in order to determine whether a public consideration received. On the other hand, body is or is not a taxable person in respect H according to the Court's case-law, which of certain activities in which it engages. has once again been confirmed in the 15 judgment of 23 November 1988, that

consideration 'is a subjective value, since the the Report for the Hearing) constitutes basis of assessment is the consideration activity engaged in as a public authority. actually received and not a value estimated according to objective criteria' (para­ graph 16). It was therefore more by virtue 52. I would add that if that criterion were of the absence of the necessary link between to be accepted, a local authority could never the advantages and the consideration therefor be subject to VAT for the transport services, than by virtue of the imbalance between the swimming pools, theatres and museums level of those two items that the Court which it brings into being because the price decided that 'mandatory charges of the kind charged to the user is almost always a imposed on the growers in this case do not 'political price', that is to say, a price which constitute consideration having a direct link does not correspond to the cost of the with the benefits accruing to individual service provided. growers as a result of the exercise of the Development Council's functions' (paragraph 16 of the judgment in Apple and 53. For the reasons I have just indicated Pear Development Council). That seems to and for those mentioned when considering me to be all the more true because the first the criterion of the objective to be 16 argument on which the Court based its achieved, I therefore consider that the judgment was precisely the fact that those method of fixing (unilaterally and by an benefits were to the advantage of the entire exercise of public authority) or the calcu- industry concerned and not necessarily to lation of the consideration obtained by a that of each individual grower (see public body cannot be regarded as decisive paragraph 14). in defining the activities engaged in 'as public authorities'.

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the Netherlands Government, those which 59. I therefore propose that the Court are exercised under a 'mandate conferred by should adopt four alternative criteria for the legislature', constitute in any event ac­ 'recognizing' such an activity, namely: tivities engaged in 'as public authorities' even if they are not reserved exclusively for bodies governed by public law. (i) the exercise by a body of powers vested in it as a public authority;

56. Once the legislature considers that a given activity is of such an importance from (ii) the mandatory nature of the activity; the point of view of the public good that it must in all cases be carried on by local auth­ orities or other bodies governed by public (iii) the use of rights or powers derogating law, it necessarily becomes an activity from the generally applicable rules of engaged in by those bodies as public auth­ law; orities.

(iv) the fact that the activity in question is, by law, a monopoly. 57. The Commission also referred to ac­ tivities engaged in by means of unilateral acts or conduct which are the expression of rights and powers derogating from the 60. However, what the national courts wish generally applicable rules of law (concessions, to know is whether there are also criteria for example). Here again I share the making it possible to determine with Commission's opinion that such activities certainty that an activity coming within one are engaged in by bodies governed by public of those categories cannot give rise to law 'as public authorities'. treatment as a taxable person for the purposes of VAT.

63. The exception is that they are none the be negligible). However, it may be that in a less so subject in cases in which their Member State one or other of those ac­ treatment as non-taxable persons would be tivities is reserved exclusively for local auth­ liable to lead to significant distortions of orities. That seems to be the case in Italy in competition. regard to the supply of water. In such a case, the criterion of exclusivity is thus not decisive in determining whether or not there is to be treatment as a taxable person. The 64. It is therefore for the Member States to third subparagraph of Article 4(5) thus determine the activities in support of which constitutes a very special provision which significant distortions of competition are to sets out, on the one hand, the cases in be found if the public bodies which engage which the existence of a distortion of in them were not subject to VAT in respect competition is, so to speak, presumed, but, of them. As a general rule, the problem may on the other, also the cases which give rise thus be resolved only by an assessment to treatment as a taxable person even if made by the Member State of each of those there is no likelihood of a distortion of activities. Furthermore, that assessment may competition. It is fairly clear that Article lead to different results in each Member 4(5), by virtue of having been amended State. during the negotiations, has ceased to have any rigorously logical structure. That also can be seen from the use in the French, Dutch, Greek, and Portuguese versions of 65. However, there is one case in which no the third subparagraph of the word distortion of competition can manifest itself, 'notamment' ('in particular'), which makes namely that in which the Constitution, a no sense in a sentence which refers to ac­ statute or a provision of equal force reserves tivities which must 'in any case' give rise to the exercise of the activity in question treatment as a taxable person. Since a word exclusively to bodies governed by public corresponding to 'notamment' is not to be law. found in the Danish, English, German, Italian and Spanish versions, I consider that there is no need to attach much importance to it.

treatment as a taxable person. They are also 72. Ultimately, it is therefore necessary to mainly reserved exclusively for bodies conclude that the only criterion which governed by public law and in that case the makes it possible to say with certainty that abovementioned criterion comes into an activity engaged in by a body governed operation. However, as is shown by Case by public law cannot be subject to VAT is 235/85, the 'notaries and bailiffs' case, it the fact that that activity is reserved exclus cannot be excluded that certain activities ively for such bodies. If I have correctly involving the exercise of powers conferred understood the Commission, it proposes to by public law would be carried out in use that test concurrently with two others. parallel by private persons and bodies However, if the criterion of exclusivity is governed by public law. It could therefore fulfilled, other criteria are no longer become necessary to make those bodies necessary because in that case there cannot subject to VAT in order to avoid a be any distortion of competition. significant distortion of competition.

74. If the national court used the word private enterprise might enter into compe 'exclusively' to refer to activities reserved by tition with the public body (for example, the law for bodies governed by public law (de law might require local authorities or other jure exclusivity and not de facto exclusivity) regional bodies to organize shipping services the reply to that question must certainly be between the mainland and off-shore islands in the affirmative. However, I think it is without prohibiting private individuals from possible to give the national court a broader setting up a competing service). reply by indicating to it that it is sufficient that an activity should be reserved exclus ively for bodies governed by public law, even if that activity is not carried out under powers vested in such bodies as public auth

OPINION OF MR MISCHO — JOINED CASES 231/87 AND 129/88

76. Consequently, I propose that the Court 79. It follows from the analysis made in should reply as follows to the second regard to the second question that the question referred to it in Case 231/87: expression 'such activities' used in the second subparagraph refers to activities or trans­ actions engaged in by bodies governed by public law in their capacity as public auth­ orities, that is to say, those involving the 'The first subparagraph of Article 4(5) must exercise of powers vested in them as such, be interpreted as meaning that the Member those which are carried out by virtue of a States, regional and local authorities and binding obligation imposed by the legal other bodies governed by public law may in order of the State and from which they no circumstances be regarded as taxable cannot be dispensed or those carried out by persons in respect of activities or trans­ unilateral acts or conduct involving the actions in which they have the exclusive rights or powers derogating from the right to engage, except if such activities or generally applicable rules of law, in so far as transactions are among those listed in such activities are not reserved exclusively Annex D to the Sixth Directive.' for such bodies. That is how I propose that the Court should reply to that question.

III — The third question referred to the Court in Case 231/87 80. In my view, it goes without saying that the second subparagraph of Article 4(5) refers only to activities or transactions in respect of which a public body receives 77. That question seeks to ascertain consideration, of whatever kind, because only 'the supply of goods or services effected for consideration within the territory of the country' falls within the 'whether, the assumption that the institu­ scope of VAT (Article 2 of the Sixth tional activities are carried out exclusively Directive). by a public body, the Community legis­ lature, by the use of the expression "such activities" in the second subparagraph of Article 4(5), intended to refer to residual activities relating to public services, IV — Obligations of Member States governed by Royal Decree No 2578 of 15 concerning the method of transposition of October 1925'. the directive

82. (a) Were the Member States required 87. We have seen that the concept of to lay down the general principle set out in 'activities or transactions engaged in as the first subparagraph of Article 4(5) by public authorities' acquired, in the measure defining the specific criteria for determining adopted by the Council, a wider scope than the activities engaged in by local authorities that which it had in the Commission's 'as public authorities'? proposal and that it covers both activities engaged in by public bodies in the exercise of their public powers (iure imperii) and activities which could be regarded as economic, that is to say, activities as 83. Under the third paragraph of Article producers, traders and persons supplying 189 of the Treaty, the Member States are services, according to the definition required to adopt the measures necessary to contained in Article 4(2). ensure that the result aimed at by a directive can be achieved. On the other hand, they alone are competent to choose the form and methods by which that obligation is to be fulfilled. 88. It follows from Article 4(5) that the Member States are also required not to make activities regarded as commercial 84. One of the methods for achieving the under national legislation subject to VAT if result aimed at by Article 4(5) of the Sixth those activities fulfil the criteria worked out VAT Directive might consist in simply in reply to the second question referred to incorporating in the national legislation the the Court in Case 231/87. principle laid down in the first subparagraph of that provision. The Member State is free to add, if it wishes, specific criteria making it possible to determine not merely which activities are engaged in by bodies governed 89. (c) Were the Member States obliged to by public law 'as public authorities' but incorporate into their tax legislation the above all those which must give rise to criterion of 'significant distortions of treatment as a taxable person for VAT competition' (fourth question in Case purposes. 231/87) or were they required not to tax activities engaged in as public authorities by bodies governed by public law when they do not lead to significant distortions of compe­ 85. A more simple method could therefore tition, by laying down the necessary quanti­ be to draw up a list of the activities in tative limits [Question 2(c) in Case 129/88]? question. That could be done concurrently with the incorporation of the general principle or as an alternative to this.

Article 4(5) are not subject to VAT, unless circumstances give rise to distortion (while this is likely to lead to significant distortions none the less being an activity engaged in of competition. 'as a public authority') the Member State would have incorrectly fulfilled its obli­ gations under the directive in that regard. 91. The Member States are obviously free to provide for that exception in their national legislation but this, of itself, would 93. (d) Are the Member States required to leave too many uncertainties both for the incorporate into their tax legislation the competent administrative authority and for criterion of the negligible scale of certain the bodies governed by public law activities (fifth question in Case 231/87) or concerned. are they required to fix a threshold below which the activities listed in Annex D are not subject to taxation [Question 2(d) in 92. On the other hand, it is hardly Case 129/88]? conceivable that the mere establishment of a quantitative limit, without more precision, would be of such a nature as to dispel those 94. As I have already pointed out above in uncertainties. Distortion of competition is a regard to the problem of 'direct effect', the concept which does not lend itself to an activities listed in Annex D must be subject assessment in figures valid for all economic to VAT only in so far as they are not activities likely to be engaged in by bodies carried out on such a small scale as to be governed by public law. I do not see how negligible. The Member States have several the Member States could do otherwise than possibilities when it comes to implementing to draw up either a positive list of activities that principle. One of them consists in not subject to VAT or a negative list of ac­ laying down a threshold below which the tivities which are so subject (the solution activity is not subject to taxation. chosen by the Italian Ministry of Finance) or both. A negative list is composed obviously of activities deemed to create 95. I therefore propose to give the two significant distortions of competition. If it Italian courts the additional replies set out should none the less appear that one of the in paragraphs 4, 5 and 6 of the general activities included in that list can in no conclusion.

(3) The expression "such activities" used in the second subparagraph refers to activities or transactions engaged in by bodies governed by public law in their capacity as public authorities, that is to say, those which involve the exercise of powers vested in them as such, those engaged in by virtue of an obligation imposed by the legal order of the Member State and from which they cannot be dispensed or those engaged in by means of unilateral acts or conduct under rights or powers derogating from the generally applicable rules of law, in so far as those activities are not reserved exclusively for such bodies.

(4) The first subparagraph of Article 4(5) must be interpreted as meaning that the Member States are required to adopt the measures which they consider the most appropriate for ensuring that the activities or transactions engaged in by public bodies in their capacity as public authorities are not subject to VAT in so far as they are not covered by the exceptions laid down in the second and third subparagraphs.

(5) The second subparagraph of Article 4(5) of the Sixth VAT Directive does not impose an obligation on the Member States to transpose literally into their national law the criterion of "significant distortions of competition". On the other hand, they are required to apply that criterion in practice and to make a concrete assessment of the competitive position in a form and in accordance with methods which they consider the most appropriate, making activities or transactions engaged in by bodies governed by public law in their capacity as public authorities subject to VAT whenever not to do so would be liable to lead to significant distortions of competition.