C-63/96

" Original language: English. 1 — Sixth 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 tax: uni­ form basis of assessment (hereinafter 'the Sixth Directive'); OJ 1977 L 145, p. 1.

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(c) in respect of supplies referred to in Member States may derogate from the provi­ Article 6(2), the full cost to the taxable sions of this paragraph provided that such person of providing the services; derogation does not lead to distortion of competition.'

4. Article 27 of the Sixth Directive is the sole article in Title XV, entitled 'Simplification Procedures'. It allows Member States, sub­ ject to its terms, to derogate from other pro­ visions of the Directive. Article 27(5) deals 3. The 'full-cost' rule for determination of with the maintenance in force of existing the 'taxable amount' applies to the special national measures which may not be com­ cases of own consumption in Article 6(2), patible with the Sixth Directive. Article 27(1) which provides: to (4) concern new derogating measures and are worded as follows:

'The following transactions shall be treated as the supply of services for consideration: '1 . The Council, acting unanimously on a proposal from the Commission, may autho­ rize any Member State to introduce special measures for derogation from the provisions of this Directive, in order to simplify the procedure for charging the tax or prevent (a) the use of goods forming part of the certain types of tax evasion or avoidance. assets of a business for the private use of Measures intended to simplify the procedure the taxable person or one of his staff or for charging the tax, except to a negligible more generally for purposes other than extent, may not affect the amount of tax due those of his business where the value at the final consumption stage. added tax on such goods is wholly or partly deductible;

5. In Germany, the Umsatzsteuergesetz 1980 (Law on Turnover Tax 1980, hereinafter 'the UStG') brings German turnover tax law into 1. Goods and services which corporations line with the requirements of the Sixth and associations of persons within the mean­ Directive. 2In so far as the taxable amount ing of Paragraph 1(1) Nos 1 to 5 of the Cor­ for VAT purposes is concerned, Para­ poration Tax Law, associations of persons graph 10(1) of the UStG provides, by way of without legal personality and communities general rule, that 'consideration' is 'every­ supply in the context of their business to thing which the recipient of the supplies their equity holders, shareholders, members, expends in order to acquire the supplies, but partners or persons associated with them or after deduction of turnover tax'. which sole traders supply to associated per­ sons;

6. In the case of supplies for own consump­ tion, Paragraph 10(4) derogates from that general rule. Under subparagraph (2) the basis of assessment is determined '... accord­

3 — Turnover tax docs not, however, form part of the basis of 2 — BGBl I, p. 1953. assessment.

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if the basis of assessment under paragraph (4) by the Finanzamt (Tax Office) Bergisch exceeds the consideration under Gladbach in accordance with that basis of paragraph (1).' assessment.

10. Following an unsuccessful administrative objection to the disputed assessment, the plaintiff appealed to the Finanzgericht 8. The plaintiff and respondent in the main (Finance Court), which upheld his appeal. proceedings (hereinafter 'the plaintiff') is the Although the Finanzgericht actually found owner of a multiple dwelling, which he built that the lessee was not associated with the himself, and several flats. He let those prop­ plaintiff for the purposes of Para­ erties to a limited company (hereinafter 'the graph 10(5)(1) of the UStG, it also ruled that lessee'), whose shareholders comprised his Paragraph 10(5)(1) should be interpreted wife and his adult son. Each shareholder had restrictively, and, consequently, was inappli­ a 50% holding, but his spouse was the man­ cable where the consideration agreed for the aging director of the lessee company with services provided corresponded to the mar­ sole power of representation. It is accepted ket rate for such services. Referring specifi­ by the parties to the main proceedings that cally to the explanation offered by the Ger­ the rents agreed between the plaintiff and the man Government in 1978 upon introducing lessee corresponded to the normal market before parliament the draft of what later rents for comparable properties in the area. became the UStG 1980, the Finanzgericht held that the minimum basis of assessment prescribed under Paragraph 10(5) must be applied whenever the trader supplies goods or services 'for an unreasonably low consid­ eration' ('zu unangemessen niedrigen Entgelten') so as to preclude instances of 4 partially untaxed consumption occurring. However, it was satisfied that the provision 9. A dispute arose concerning the amount of was not intended to cover services per­ VAT that the plaintiff was liable to pay on formed for market-rate consideration those rents, because the agreed rent was between related persons, which, according to lower than the so-called 'minimum basis of the Finanzgericht, are no different from assessment' (the 'Mindestbemessungsgrund- transactions involving unrelated persons. lage') applicable under Paragraph 10(5)(1) in conjunction with Paragraph 10(4)(2) of the UStG quoted above. The plaintiff was assessed, following a special VAT audit, 4 — Sec BRDrucks 145/78, 38.

(i) The first question

'1 . Does Article 27 of Directive 77/388/EEC cover an authorization by the Council to introduce special measures for derogation from Directive 77/388/EEC in order to pre­ vent tax avoidance which, in the case of sup­ 12. The national court states that Para­ plies for consideration made between associ­ graph 10(5) of the UStG was introduced as a ated persons, apply the cost to the taxable special measure within the meaning of person within the meaning of Article 27 of the Sixth Directive in deroga­ Article 11(A)(1)(c) of Directive 77/388/EEC tion from Article 11(A)(1)(a). The German as the minimum basis of assessment also Government's draft law of 15 March 1978 where the agreed consideration represents had been accompanied by a statement of

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(ii) The second question observations were submitted by the plaintiff, Germany, France, the Commission and the Kingdom of the Netherlands. France con­ fined its written and oral observations to the second question. In the light of the concur­ rence of views expressed in the written observations concerning the second ques­ 15. The national court refers to Handelsv- tion, Germany confined its oral observations ereniging Rotterdam v Minister van Land- 9 to the first question. The plaintiff and the bouw and states that failure to publish mea­ Commission also concentrated their oral sures whose publication was not required by observations on the first question. The Neth­ the Treaty — such as the authorization erlands, though expressing particular interest granted by the Council in this case — can in the second question, none the less made have no effect on the validity or effectiveness some observations regarding the first ques­ of the measure. However, it did not accept tion. the argument of the Bundesfinanzministe­ rium (Federal Finance Ministry, hereinafter 'the Ministry'), submitted in the main pro­ ceedings, that a reasonable appraisal of the announcement made by the German Gov­ ernment on the introduction in 1978 of its draft law constituted an effective publication III — Analysis of the intended derogation from Article 11 of the Sixth Directive. In its opinion, publica­ tion 'in generally accessible sources' is neces­ sary in order to enable a taxable person to recognize that a derogation from the Sixth Directive has been obtained that precludes him from relying upon the direct application The first question of other more favourable provisions of that Directive.

that rule at least to transactions for which '... in order to simplify the procedure for market consideration is agreed, is incompat­ charging the tax or to prevent certain types ible with Article 11(A)(1)(a). Hence, it can be of tax evasion or avoidance'. Furthermore, applied only if it comes within the scope of a the final sentence of Article 27(1) contains a valid authorization pursuant to Article 27. special provision for applications regarding simplification measures that does not apply to anti-evasion measures, namely the requirement that 'measures intended to simplify the procedure for charging the tax, except to a negligible extent, may not affect the amount of tax due at the final consumption stage'. It is clear, therefore, that 18. By its first question, the national court the Community legislature intended to draw essentially asks whether the authorization a distinction between the two types of granted by the Council may, in conformity measures. with Article 27 of the Sixth Directive, be applied by Germany in circumstances where there is no evidence either of tax evasion or avoidance. However, since Germany submits in its written observations, as an alternative to its main contention — to wit that Para­ graph 10(5) of the UStG as a tax avoidance measure complies with Article 27 — that the 20. The importance of this distinction was special measure may actually be regarded as emphasized by the Court and the Advocate a simplification measure, I shall deal initially General in Commission v Belgium. 11 with that submission. Accordingly, under Article 27 of the Sixth Directive, Member States are under an obli­ gation precisely to identify both the content and the nature of the derogating measures for which they are seeking authorization. In 12 Direct Cosmetics I, where the United Kingdom had introduced a new national measure a number of years after it had (i) The national rule as a simplification obtained a Council authorization pursuant measure to Article 27 for the measure actually referred to in its application to the Commis­ sion, the Court held that the original notifi­ cation became ineffective upon the replace­ ment of the notified measure with the new measure, '... unless it is shown that the new provision may be regarded as being substantially the same as the previous 19. Title XV of the Sixth Directive concerns 'Simplification Procedures'. Article 27(1) expressly envisages that applications for 10 — Emphasis added. authorizations to derogate from the provi­ 11 — Cited in footnote 8 above; see, in particular, paragraph 24 of the judgment and paragraph 3 of the Opinion of Advocate sions of the Sixth Directive may concern General VerLoren van Themaat. measures perceived to be necessary either 12 — Case 5/84, cited in footnote 8 above.

13 — In his Opinion in Direct Cosmetics I, it is noteworthy that Advocate General VcrLoren van Themaat compared the replacement by a Member State of a measure notified (and 22. The Court has consistently held that approved) pursuant to Article 27 with a situation where such a measure 'later proves to be different in substance derogations from the general provisions of than was stated by the Member State concerned at the time of notification and is then replaced by a measure with a dif- ferent wording'; [1985] ECR 617, p. 627. 14 — Case C-62/93 BP Supergas v Creek State [1995] ECR I-1883. 16 — Indeed, Advocate General VerLoren van Themaat, in his 15 — Ibid., paragraph 23 of the judgment. The rationale underly- Opinion in Commission v Belgium, referring to the prevail- ing these requirements is explained by Advocate General ing legal practice of the Commission and the Council con- Jacobs in his Opinion. Referring to the short time-limits cerning Article 27(1), stated that: 'It appears in fact from that govern the procedure under Article 27 for tacit Annex IV to the Commission's reply that in at least one approval of measures and the need to verify the proportion- case the Council and the Commission have accepted a mini- ality of those measures, he states that: 'It is therefore essen- mum taxable base to prevent tax evasion (paragraph 10(5) tial that the Member States and, in particular, the Commis- of the German Turnover Tax Law)' (emphasis added). To sion should be given a proper opportunity to examine accept such a base as a simplification measure, the Council proposed measures in order to verify that those require- would have to consider whether the proposal would respect ments arc met. In view of the time-limits imposed by the requirement of the last sentence of Article 27(1). It can- Article 27, this is possible only if specific notice is given of not be assumed that a measure notified as a tax avoidance the proposed measures'; sec paragraph 36 of the Opinion. measure invites or permits such consideration.

the Sixth Directive must be interpreted arbitrariness of an assessment based on costs strictly. Since Article 27(1) to (4) provide for where, in the building sector, such costs are the authorization of individual national often inflated. In the present case, the plain derogations from the Sixth Directive, as the tiff constructed the multiple dwelling at his Court has often stated, they must be inter own expense, but the market rent is found to 17 preted strictly. In respect of the scope of be lower than one based on that cost. measures authorized to prevent tax evasion or avoidance, the Commission rightly refers to the principle enunciated by the Court in Commission v Belgium, to wit that such measures 'must be of such a nature as to pre vent tax evasion or avoidance and that in principle they may not derogate from the basis for charging VAT laid down in Article 11, except within the limits strictly

. . .'. At the hearing, the Commission referred that it receive a remuneration which, at least, with approbation to the Council's present equates with the costs incurred in supplying practice of ensuring that those special mea the relevant service. It says that cases where sures approved under Article 27 are limited the level of consideration normally available to the minimum necessary to achieve their on the market does not meet those minimum 19 costs are exceptional and submits that the aim. The plaintiff emphasized the potential result of applying Paragraph 10(5) of the UStG in those cases respects the principle of proportionality; all legal rules must be objec 17 — Sec, for example, in respect of the exceptions contained in tive and, hence, a VAT anti-avoidance meas Article 13 of the Sixth Directive, Case 348/87 Stichting Uitvoering Financiële Acties [1989] ECR 1737, paragraph 13 ure may legitimately be drafted by reference of the judgment and Case C-453/93 Bulthuis-Griffioen to the factual circumstances which habitually [1995] ECR I-2341, paragraph 19 of the judgment. 18 — Paragraph 29 of the judgment. occur in cases of VAT evasion. Alluding to 19 — The agent for the Commission referred to a recent decision paragraph 30 of the judgment in Commission whereby the Council authorized the Netherlands to dero- 20 gate from Article 11(A)(1)(a) and apply the open market v Belgium, it contends that anti-evasion value as the taxable amount for the establishment of certain rights in rem subject to two conditions, the first of which measures may, in conformity with Article 27 reflects clearly the Council's concern to ensure respect in of the Sixth Directive, comprise, if necessary, the relevant Netherlands measures for the principle of proportionality. It provides (Article 1, first indent) that the application of standard amounts. It com

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in the use of a taxable amount higher than (b) Opinion the market rate of consideration with the generality of the Belgian measures found to be disproportionate by the Court in Com- 21 mission v Belgium; in that case the cata­ logue price for new motor vehicles notified to the competent authorities was assumed to be the consideration received by a motor dealer, notwithstanding the many discounts and other price rebates which are frequently 25. Article 11(A)(1)(a) of the Sixth Directive agreed in practice. Moreover, Germany imposes a clear and unconditional obligation points out that the special measure applies a on Member States when evaluating the tax­ basis of assessment whose application is able amount of a transaction. The Court has expressly envisaged by Article 11(A)(1)(c) of already held that 'the provisions of the Sixth Directive in cases of own consump­ Article 11(A)(1) ... confer rights on individu­ tion. Since such cases are comparable to als on which they may rely before a national transactions for consideration between asso­ court'. 22 A Member State relying on an ciated persons, the special measure, though Article 27 Council derogation to combat the based on a derogation, replicates the avoidance or evasion of VAT, authorizing a approach of the Directive.. basis of assessment other than that specified in Article 11(A)(1)(a), must justify the scope and application of the measures adopted. To the extent that they are not strictly necessary for achieving that aim, they cannot be 23 applied to the detriment of a taxpayer.

provide the national court with criteria for not be passed on to the recipient of the determining whether the derogation invoked goods and services'. Presumably this might by Germany in defence of the applicability superficially be justified by pointing out that of its special measures in the circumstances the supplier of the services, who must pay at issue in the main proceedings, which VAT on the higher claimed consideration, would otherwise clearly contravene will be able to deduct VAT inputs to a cor­ Article 11(A)(1)(a), is permitted because of responding amount and will not, therefore, the derogation granted under Article 27 of suffer a loss. However, this seems to me to the Sixth Directive. The question of Com­ contradict the principle of neutrality of the munity law which arises for the determina­ VAT system. In its recent judgment in Elida tion of the Court therefore concerns the Gibbs v Commissioners of Customs and 24 scope and not the validity of the Council Excise the Court stated that: derogation.

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market rate and there is no tax avoidance. It validity or applicability on any publication points out, in terms with which I agree, that or notification, which in their view is not there was nothing to prevent the use of mar­ required by any provision or principle of ket value as the basis of assessment in a dero­ Community law. This question, in so far as it gating special measure. In short, it considers potentially raises the general issue of the that Paragraph 10(5) of the UStG goes effectiveness of unpublished decisions of beyond the aim of the derogation. Community institutions against parties other than their addressees, would clearly merit consideration by a plenary formation of the Court. Since the Court may, if it follows my recommendation in respect of the first ques­ tion referred, decide that it is no longer nec­ 28. I agree with the views of the national essary to answer the second question, it is court. It is not necessary to call into question with some reservation that, in the context of the validity of the derogation. It would have the present reference, I feel required to con­ been very simple to provide for cases such as sider the second question. However, the the present one, where the consideration specificity of that question should be noted; received for the services is at market rate. In as worded by the national court it only con­ so far as Paragraph 10(5) of the UStG fails to cerns the right of Member States to invoke contain such a provision, it goes beyond its 'special measures under Article 27' in the declared aim and is incompatible with absence of publication of the relevant Coun­ Article 11(A)(1)(a) of the Sixth Directive. cil decision in either the Official Journal of . the European Communities or that of the addressee Member State. Accordingly, it is in respect of that particular issue alone that the following comments should be considered. The second question

Official Journal of the European Communi- validity on any — even implied — obligation ties. It provides in so far as is relevant in the to publish in the Official Journal. This inter­ present case: pretation was confirmed by the Court in its judgment in Handelsvereniging Rotterdam v 26 Minister van Landbouw. Stressing that, even if it is desirable that derogating deci­ sions — in that case those adopted by the Commission under Article 226(2) of the '2. Regulations of the Council and of the Treaty — 'should be brought to the attention Commission, as well as directives of those of the public', the Court observed that institutions which are addressed to all Mem­ 'Article 191 lays down only that decisions ber States, shall be published in the Official should be notified to those to whom they are 27 Journal of the European Communities. They addressed'. shall enter into force on the date specified in them or, in the absence thereof, on the twen­ tieth day following that of their publication.

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publish an authorization thereunder. France be applied to the detriment of a taxable per­ places particular reliance on the Court's son, who, moreover, would be entitled to statement in BP Supergas that '... measures invoke the more favourable directly effective derogating from the directive do not accord provisions of the Sixth Directive. In its with Community law unless they remain observations to this Court Germany defends within the limits of the objectives referred to the arguments advanced by the Ministry in in Article 27(1) and have been notified to the the main proceedings. It relies on the express Commission and impliedly or expressly statement in the explanatory memorandum authorized by the Council in the circum­ circulated with the draft law of 15 March stances specified in paragraphs (1) to (4) of 1978 that the provision which ultimately 28 Article 27'. Although the Court was not became Paragraph 10(5) was intended to be there called upon to rule on the issue, the covered by a derogation under Article 27 of terms of this passage constitute persuasive the Sixth Directive. That declaration would implied authority for the absence of a have put taxable persons on notice that the Community-law obligation to publish. I German Government had already obtained agree with the view of the national court that or was in the process of obtaining the the failure to publish the fact of the authori­ required Council authorization. Naturally a zation in the Official Journal does not affect taxable person would be free to challenge the its validity. compatibility of any authorization ultimately granted with the Sixth Directive. In such cases, the national court could require the German authorities to provide all the rel­ evant information in respect of the authori­ zation pursuant to Article 35 of the Grundgesetz (German Constitution).

of legal certainty requires that rules imposing be obtained pursuant to Article 27 and, sec­ charges on the taxpayer must be clear and ondly, to the terms of the national law, precise so that he may know without ambi­ which (in the instant case) simultaneously guity what are his rights and obligations and implemented that directive and the 30 may take steps accordingly'. Moreover, in impugned derogation from it that is being 31 UNECTEF v Heylens the Court described invoked against him. On its face, therefore, the right to an effective judicial remedy he has a right to an effective judicial remedy, against decisions adverse to the individual since he may, merely by objecting even at an exercise of Community-law rights (in that initial administrative stage, require the rel­ case Article 48 of the Treaty) in terms of per­ evant Member State to justify the discrep­ mitting the individual concerned to defend ancy between the terms of its national mea­ his 'right under the best possible conditions sures implementing the Sixth Directive and and have the possibility of deciding, with full the directive itself. Moreover, unless the knowledge of the relevant facts, whether Member State can establish a valid deroga­ there is any point in their applying to the tion, the taxable person has a right to rely 32 courts'. I do not think that non- directly on the relevant provisions of the publication at national level of a Council Sixth Directive. It is the Member State which decision such as that involved in the present therefore carries the burden of proof and case reduces, other than perhaps on a purely which, if necessary, must produce proof to formal level, either legal certainty or the effi­ the national court of compliance with the cacy of administrative or legal remedies requirements of Article 27 as explained by available to the adversely affected taxable the Court in BP Supergas (see paragraph 32 person. above). In such proceedings, in addition to whatever rights are conferred by national law, Community law requires that the tax­ able person must, obviously, be afforded every reasonable opportunity to challenge and question that compliance. It must be assumed that the national court will, in accordance with national procedures, allow him access to all necessary information, rea­ sonable time and appropriate remedies in respect of legal costs; in effect to fair proce­ 33 dures. Nevertheless, I cannot see how the failure of publication of the derogation can, in itself, affect the right of a Member State to rely upon it. This must, in particular, be the case where the derogation granted limits the 35. In cases such as that of the plaintiff, scope of a directive which has, in accordance the taxable person has access, as items of with Article 189 of the Treaty, been imple­ public law, firstly to the text of the Sixth mented in a timely and appropriate fashion Directive, which expressly puts him on by the relevant Member State, and which on notice that implicit Council derogations may its face provides expressly for the grant of such derogations.

In the event of the Court not following my recommendation in respect of the answer to be given to the first question, the second question should, in my opin­ ion, be answered as follows:

A Member State may invoke against a taxable person national measures imple­ menting an implicit Council derogation adopted under Article 27(1) of Directive 77/388/EEC, which satisfies both the procedural and substantive requirements of validity under Article 27(1) to (4) of Directive 77/388/EEC, notwithstanding that, firstly, the Council's decision authorizing the measures was not published in the Official Journal of the European Communities and, secondly, the authorization procedure under Article 27(2) to (4) of Directive 77/388/EEC was not made public — after its completion — in official publications of the Member State.

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