C-10/92

My Lords, the trader submits his annual return he pays the amount of VAT outstanding in respect of the whole year's trading (or, where appropri- ate, recovers the amount due to him). It is the trader's turnover which determines 1. In these proceedings the President of the whether he must make monthly or quarterly Tribunale di Genova seeks a preliminary rul- payments of VAT. The basic rule is laid ing on the interpretation of certain provi- down in Article 27 of Presidential Decree sions of the Sixth Directive on value added No 633/72 (as amended), according to which tax (Council Directive 77/3 88/EEC; OJ the trader must, by the 20th of each month, 1977 L 145, p. 1). The central issue is calculate and pay the amount of VAT due on whether national legislation requiring traders the basis of the entries made in his VAT reg- to make interim payments of tax before the ister in the previous month. 1 However, Arti- end of the relevant tax period is compatible cle 33 of Decree No 633/72 makes simplified with the Sixth Directive. arrangements for small traders. It provides, so far as material, that traders whose busi- ness consists in the provision of services and whose annual turnover in the previous year did not exceed LIT 360 million must make The background to the case periodic payments by the fifth day of the second month after each of the first three quarters of the year. The VAT due in respect of the final quarter of the year is in principle paid at the time of the annual return in 2. The applicant in the main proceedings, March of the following year. However, as Mr M. Balocchi, is engaged in business in from 1991 that situation was substantially Italy as an administrator of real property. He altered by Article 6(2) of Law No 405/90 of is a registered trader for the purposes of 29 December 1990, which provided as fol- value added tax (VAT). The Italian VAT leg- lows: islation provides for tax periods of one cal- endar year (1 January to 31 December). Traders must present an annual return in respect of each tax period by 5 March of the following year. The annual return is of a 'As from 1991 traders who arc required to recapitulative nature: in the course of the pay the tax in accordance with Article 27 of year traders must, on a monthly or quarterly basis, calculate the amount of VAT due and pay that amount to the tax authorities; when 1 — However, traders who entrust their book keeping to other persons may calculate the monthly payment by reference to entries made in the VAT register in the previous month but one: see Article 27. first paragraph, second sentence, of Decree No 633/72. That sentence was added to Article 27 by * Original language: English Article 1(5)(c) of Decree Law No 151 of 13 May 1991,

Presidential Decree No 633/72 of 26 Octo- make the payment on account referred to in ber 1972 [i. e. traders who are required to the third sentence of Article 6(2) of Law make monthly payments] shall pay by No 405/90. Mr Balocchi considered that the 20 December, by way of account on the pay- requirement to make such a payment before ment relating to that month, an amount the end of the quarter was contrary to Arti- equal to 65% 2 of the payment which they cles 10 and 11 of the Sixth Directive. With a made or should have made for the month of view to obtaining a declaration to that effect December in the previous year or, if less, an he brought proceedings against the Italian amount equal to 65% of the payment to be Ministry of Finance before the Tribunale di made for the month of December of the cur- Genova. Those proceedings were com- rent year. Credit shall be given for the pay- menced on 16 December 1991 (i. e. four days ment on account when the tax for December before the payment on account was to be is paid. By the same date the traders referred made). He also applied for an interim order to in Article 33 of Presidential Decree suspending the obligation to make the pay- No 633/72 of 26 October 1972 [i. e. traders ment on account. The President of the Tri- who are required to make quarterly pay- bunale di Genova granted the suspension ments] shall pay, by way of account on the and referred the following questions to the payment to be made at the time of the Court of Justice for a preliminary ruling: annual return, an amount equal to 65% of the payment which they made or should have made at the time of the previous year's annual return or, if less, an amount equal to 65% of the payment to be made at the time of the return relating to the current year; ...' '1. Have the provisions of Articles 10 and 11 of Council Directive 77/388/EEC of 17 May 1977 harmonized the concepts of the Article 6(5) of Law No 405/90 provides that: chargeable event and the moment when tax becomes chargeable and, if so, do those pro- visions confer rights on individuals which 'Anyone who fails, in whole or in part, to they can invoke in proceedings before make the payments referred to in paragraph national courts? (2) shall be subject to a surcharge of 20% of the amount not paid or of the underpay- ment.'

'1. (a) "Chargeable event" shall mean the The return must set out all the information occurrence by virtue of which the needed to calculate the tax that has become legal conditions necessary for tax to chargeable and the deductions to be made, become chargeable are fulfilled. including, where appropriate, and in so far as it seems necessary for the establishment of the tax basis, the total amount of the transac- (b) The tax becomes "chargeable" when tions relative to such tax and deductions, and the tax authority becomes entitled the total amount of the exempted supplies. under the law at a given moment to claim the tax from the person liable to pay, notwithstanding that the time of payment may be deferred. 5. Every taxable person shall pay the net amount of the value added tax when submit- ting the return. The Member States may, 2. The chargeable event shall occur and the however, fix a different date for the payment tax shall become chargeable when the goods of the amount or may demand an interim arc delivered or the services arc performed. payment.'

5. Article 11 of the Sixth Directive, which 7. For reasons which should become appar- defines the taxable amount (i. e. the amount ent later, certain provisions of Articles on which VAT is chargeable), does not seem 17 and 18 arc also relevant. Those articles to be directly relevant in these proceedings. I entitle the trader, subject to certain condi- shall make no further mention of it. tions, to deduct from the amount of VAT due in a given period the amount of VAT charged to the trader by other taxable per- 6. On the other hand, paragraphs (4) and (5) sons in respect of supplies made to the trader of Article 22 of the Sixth Directive, which in the same period. In particular, Arti- are not cited in the order for reference, do cle 17(1) provides: appear to be relevant. They provide as fol- lows:

10. Mr Balocchi observes that in his field of business an exceptionally large proportion of turnover tends to be realized in the last days 8. Mr Balocchi's argument is very simple. of the year but that much of his business is He contends that, if he had been obliged to of an aleatory nature and his final turnover is make a payment on account on 20 December unpredictable. He mentions several more 1991, in accordance with Article 6(2) of Law categories of trader whose turnover is No 405/90, he might have been required to affected by seasonal and climatic factors, e. g. pay VAT in respect of transactions which hotel proprietors in ski resorts. had not yet taken place. In particular, that would be the case if a disproportionately large percentage of his turnover were real- ized in the last 11 days of the year or if his turnover were significantly lower in 1991 than in the previous year. Although in the latter eventuality the Italian legislation allowed him to compute the payment on account by reference to his actual VAT liabil- 11. According to Mr Balocchi, Article 22(5) ity in the current year, it was impossible for of the Sixth Directive, which allows Member him to determine on 20 December States to demand an interim payment, cannot 1991 whether that would produce a lower override the clear rule laid down in Arti- figure than a computation based on the pre- cle 10(2) that VAT is chargeable when the vious year's trading, since he could not know transaction in question is carried out. what volume of transactions he would real- Mr Balocchi finds confirmation of that view ize in the final 11 days of the year. Thus, in in the Court's judgment in Case order to be certain of not incurring the 20% 42/83 Dansk Denkavit v Ministeriet vor surcharge provided for in Article 6(5) of Law Skatter og Afgifter [1984] ECR 2649, where No 405/90, he would have had to calculate the Court spoke (in paragraph 19) of the the payment on account by reference to the Member States' legislative power 'to fix the previous year's results. periods within which the tax must be paid

12. Mr Balocchi's position is supported by 14. As to the substance, the Italian Govern- the Commission, which argues that Arti- ment argues that the taxpayer is not obliged cle 10 of the Sixth Directive lays down a by the contested Italian legislation to pay clear rule to the effect that the tax becomes VAT on transactions that have not yet taken chargeable upon completion of the specific place. It points out that the taxpayer has a transactions that give rise to taxation. The choice between paying 65% of the amount Commission, like Mr Balocchi, also draws a due the previous year or 65% of the amount distinction between a payment on account due in the current year: if on 20 December and an advance. Article 22(5) of the Sixth he finds that his turnover has fallen in Directive permits the former but not the lat- comparison with the previous year he may ter. It authorizes Member States to demand opt to base the interim payment on the cur- payment of part of a tax debt that has actu- rent year's trading; if, on the other hand, his ally arisen, pending the definitive quantifica- turnover has risen, he may base the interim tion of the debt at some later moment. In payment on the lower turnover of the previ- addition the Commission goes to some ous year. The Italian Government also points length to demonstrate that the relevant pro- out that the Italian legislation gives traders visions of the Sixth Directive arc sufficiently over two months (from 2 January to clear, precise and unconditional to produce 5 March) to make the annual VAT return in direct effect. respect of the previous year's trading. Trad- ers who are in credit submit their returns as early as possible, while traders who owe tax to the authorities wait till the last day. The Italian Government points out that Arti- The position of the Italian Government cle 22(4), first subparagraph, of the Sixth Directive provides that the interval within which returns must be submitted is to be determined by Member States but must not exceed two months from the end of each tax period. The Italian legislation grants traders a 13. The Italian Government queries the slightly longer period. Although the argu- admissibility of the request for a preliminary ment on this point is not entirely clear, the ruling. It does so on two grounds: first, the implication is that the contested legislation proceedings should have been commenced simply offsets the excessive generosity of the before a specialist tax tribunal and not before rule that annual returns do not have to be the Tribunale di Genova, which as an ordi- submitted until 5 March. Finally, the Italian nary civil court has no jurisdiction; secondly, Government contends that the requirements the decision to request a preliminary ruling imposed by the contested legislation arc was taken in ex parte proceedings in which entirely consistent with Article 22(5) of the the Italian tax authorities were given no Sixth Directive.

15. I should mention also a point stressed at 17. In that case the Court observed that it the hearing by the representative of the Ital- may 'prove to be in the interests of the ian Government: the Italian legislation pro- proper administration of justice that a ques- vides only for a 12-month tax period and an tion should be referred for a preliminary rul- annual VAT return; although traders are ing only after both sides have been heard'. required to make monthly or quarterly pay- However, the Court went on to hold that it ments of tax, depending on their turnover, is for the national court alone to decide they do not submit a return, within the whether it is necessary to hear the defendant meaning of Article 22(4) of the Sixth Direc- before making an order for reference. tive, when making those payments and the periods to which the payments relate are not separate tax periods within the meaning of Article 22(4). Strictly speaking, that is no doubt correct, since traders are not required to supply the detailed information set out in Article 22(4) when making monthly or quar- terly payments under Articles 27 and 33 of Decree No 633/72. The point is however 18. It may be sufficient to refer to that case- largely academic: under the last-mentioned law, though it is worth stressing once again provisions the trader is required to calculate that it would in general be better if a refer- and pay the precise amount of tax due in ence were made only after both sides had respect of the previous month or quarter; if been heard. That might enable the issues to he pays less than the amount due, he incurs a be identified more clearly in the order for penalty of two to four times the amount not reference, on which alone the written obser- paid (see Article 44, second paragraph, of vations of Member States and the Commis- Decree N o 633/72). In effect the Italian sys- sion have to be based. In the present case it tem comes very close to a system of monthly might have been expected that, if the Italian or quarterly returns, with the difference that Finance Ministry had been heard, the order a balancing exercise is performed every for reference would have mentioned Arti- 12 months. cle 22 of the Sixth Directive, which is undoubtedly relevant.

must be challenged through the procedures lower). T h e figure of 6 5 % may have been available under national law. In Case chosen because it corresponds almost exactly 65/81 Reina v Landeskreditbank Baden- to the p r o p o r t i o n of the m o n t h that has Württemberg [1982] E C R 33, in which the elapsed on the date in question ( 2 0 / 3 1 = admissibility of a reference was challenged 64.5%). As regards traders w h o make quar- on the ground that the referring court was terly payments, the situation is less clear. T h e not properly constituted, the C o u r t stated as third sentence of Article 6(2) of Law follows (at paragraph 7): N o 405/90 requires such traders to make an interim payment equal to 6 5 % of the tax which they paid or should have paid at the time of their annual return the previous year (or, if less, 6 5 % of the amount to be paid at the time of the current year's return). T h e '... it is not for the C o u r t to determine main item to be accounted for at the time of whether the decision whereby a matter is the annual return by traders w h o make quar brought before it was taken in accordance terly payments under Article 33 of Decree with the rules of national law governing the N o 633/72 is the tax in respect of the last organization of the courts and their p r o - quarter of the previous year. In addition, any cedure. T h e C o u r t is therefore bound by a other sums outstanding in respect of the pre- decision of a court or tribunal of a M e m b e r vious year arc payable at the time of the State referring a matter to it, in so far as that annual return. However, since the introduc decision has not been rescinded on the basis tion of the contested legislation the payment of a means of redress provided for by made at the time of the annual return will be national law.' reduced by the a m o u n t of the interim pay- ment made on 20 December. (Presumably, when the third sentence of Article 6(2) of Law N o 405/90 refers to 6 5 % of the a m o u n t payable at the time of the annual return it T h e effect of t h e contested Italian legislation means 6 5 % of the amount normally payable at the time of the annual return, with no reduction in respect of any interim payment made on 20 December of the previous year.)

that he was required to make an interim of course he closes his business from 20 to payment on 20 December 1991 equal to 65% 31 December). Even if, on 20 December, of the tax payable in respect of the last quar- trade appears to have fallen, the prudent ter of 1990 (or 65% of the tax which he trader will calculate the interim payment by anticipated having to pay in respect of the reference to the previous year's results; oth- last quarter of 1991). It may be noted that in erwise, if he based the interim payment on the case of traders who make quarterly pay- his anticipated results in the current year, he ments the arithmetical relationship observed would risk incurring a 20% surcharge under above, between the amount of the interim Article 6(5) of Law N o 405/90 if trade sud- payment and the proportion of the tax denly improved and his VAT liability in the period that has elapsed at the time when it is current period exceeded his liability in the made, ceases to apply: the last quarter of the corresponding period of the previous year. year contains 92 days, so by 20 December no Although at the hearing the agent for the less than 88% of the period has elapsed ( 8 1 / 9 2 = 88%). Italian Government stated that the Italian VAT legislation allows the authorities to refrain from collecting the surcharge in the event of a bona fide mistake, there does not seem to be any legal requirement that the authorities must exercise their discretion in the trader's favour.

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for the last month or quarter of the year United Kingdom's legislation is not of (if the hotel is fully booked) and may make course directly in issue in these proceedings, the interim payment on that basis, in which it is worth examining that legislation in some case he is likely to pay an amount that detail because of the light that it throws on exceeds his actual VAT liability on the issues raised in this case. 20 December.

25. The United Kingdom explains that it did 27. The necessary changes were made by the not submit written observation because it Value Added Tax (Payments on Account) did not appreciate from the terms of the (No 2) Order 1992. For each of the first two order for reference that the questions months of the quarter the taxpayer makes a referred by the Italian court might have payment on account. The quarterly return is implications for the validity of legislation then made in the usual way and the balance recently introduced in the United Kingdom. of the VAT due for the quarter is paid at that It was however represented at the hearing time. Each payment on account falls to be and the Court was given a full account of the made a month in arrears. Thus, if the quar- United Kingdom's arrangements for the col- terly tax period runs from 1 January to lection of VAT. Although the validity of the 31 March, the first payment on account is

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made at the end of February, the second 30. For the sake of completeness it may be payment on account at the end of March, noted that, according to information sup- and then the balance due in respect of the plied by the Commission in response to a whole quarter is paid at the end of April. question from the Court, three other Mem- ber States-namely, Belgium, France and Luxembourg-provide in certain circum- stances for interim payments based on the amount of tax payable in previous periods.

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BALOCCHI v MINISTERO DELLE FINANZE

33. It follows that legislation of the type in question cannot be contrary to the Sixth Directive solely for the reasons given by Mr Balocchi and the Commission. That is not, however, the end of the matter. It is clear from the scheme of the Directive that VAT is in principle payable in arrears. That 34. I have no doubt that that provision principle may be inferred from Article 22(4) allows Member States, subject to certain and (5), in conjunction with Articles 10, 17 limits which I shall attempt to define, to and 18. Thus the general rule is that the make a provisional assessment of a trader's

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36. It might be argued that the option of demanding an interim payment applies only between the end of the tax period and the date when the return must be submitted and that Article 22(5) does not in any circum- stances allow an interim payment to be demanded before the end of the tax period. In my view, such an interpretation would be 35. That interpretation is confirmed by the unnecessarily restrictive. In the first place, wording of Article 22(5). Thus, the first sen- there is much less need for an interim pay- tence of that provision lays down the basic ment after the end of the tax period. By that rule that VAT is paid when the return is sub- stage or very soon after, all the information mitted. The second sentence qualifies that about the trader's input tax and output tax in rule by providing that 'The Member States the relevant period should be available and may, however, fix a different date for the his actual liability can be calculated. It would payment of the amount ...'. That must mean be very strange if interim payments could a date after the date fixed for submitting the not be demanded until a point in time when return, since it is the return which allows the the objective justification for interim pay- amount to be quantified. But the second sen- ments is greatly diminished. Secondly, if the tence of Article 22(5) then adds the words '... interim payment is based on the trader's

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BALOCCHI v MINISTERO DELLE FINANZE

40. Consider for example the situation of a trader who makes monthly payments of VAT under Article 27 of Decree No 633/72. 38. Whatever method of estimation is used, On 20 December, when 64.5% of the month it is of course possible, as a result of the has passed, he must make an interim pay- vicissitudes of trade, that an interim payment ment equal to 65% of the tax payable in the based on estimated tax liability will exceed corresponding month of the previous year. the trader's actual liability at the time of the Even a slight fall in his turnover may result payment. In order to prevent too great an in an interim payment which exceeds his incursion into the general rule that VAT is VAT liability on 20 December. The same

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43. Before concluding, I will comment briefly on the United Kingdom's legislation, 41. Nor do I see how the contested legisla- even though it is not in issue in these pro- tion can be rendered compatible with the ceedings, since the points on which it differs Sixth Directive by the fact that the trader is from the Italian legislation serve to illustrate allowed to base the interim payment on his the respects in which the latter seems incom- actual trading results in the tax period in patible with the Sixth Directive. The follow- question. As I have already observed, the ing differences may be noted. choice offered to the trader is illusory because in most cases he cannot know on 20 December what his actual VAT liability will be at the end of the year and cannot therefore know whether he will incur a 20% surcharge if he underestimates his actual lia- bility.

44. First, under the United Kingdom's legis- lation it is considerably less likely that the interim payments will exceed the trader's 42. At the hearing it was contended on actual VAT liability at the time when they behalf of the Italian Government that Arti- are made. Here it must be remembered that cle 48, last paragraph, of Decree No 633/72 the first interim payment is collected when allows the authorities to waive the surcharge two-thirds of the quarter have elapsed and is if the trader makes a bona fide mistake in his equal to one-twelfth of the trader's actual calculations. That provision, which provides liability in the previous year. The second that the tax courts may waive pecuniary interim payment, equal to the same amount,

48. In this regard it would be pointless for 45. Secondly, if the trader can satisfy the the Italian Government to argue that its leg- authorities that his VAT liability in the cur- islation provides only for annual returns. As rent year will be less than 80% of the I pointed out above (see paragraph 15), the amount payable in the 12-month reference Italian system is barely distinguishable in period, the interim payment will be reduced effect from a system of monthly and quar- accordingly. terly returns. Strictly speaking of course, on the view put forward by the Italian Govern- ment, only the payment made in March at the time of the annual return falls within the first sentence of Article 22(5) of the Direc- tive; the monthly and quarterly payments required under Articles 27 and 33 of Decree 46. Thirdly, a trader who finds that interim No 633/72 are themselves interim payments payments work to his disadvantage has the under the second sentence of Article 22(5), in option of switching from quarterly returns which case the interim payment provided for to monthly returns, in which case he will not in Article 6(2) of Law No 405/90 amounts, be required to make interim payments at all. as the Commission has contended, to an acconto still' acconto (an interim payment of an interim payment). The justification for such a practice is extremely dubious.

47. Fourthly, the United Kingdom's scheme only applies to large traders who make quar- terly returns. The justification for demanding interim payments is particularly great in the case of such traders, since they would other- wise retain very large sums of public money 49. Disregarding this peculiarity, I reach the for relatively long periods. The contested conclusion that legislation of the kind in Italian legislation, by contrast, applies even question, insofar as it requires a trader to to traders whose turnover is acknowledged make an interim payment which is likely to to be low (such as Mr Balocchi) and to trad- exceed substantially his actual tax liability at ers who arc required to make monthly pay- the time when the interim payment is made, ments of VAT based on their actual liability. is incompatible with the Sixth Directive.

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