C-358/97

OPINION OF MR ALBER — CASE C-358/97

O P I N I O N OF ADVOCATE GENERAL ALBER delivered on 27 January 2000 *

I — Introduction a third party, which is then responsible for maintenance of the relevant infrastructure in return. However the toll collected is not subject to VAT in either case.

1. In these proceedings for failure to fulfil Treaty obligations the Commission claims that Ireland has failed to fulfil its obliga- tions under the EC Treaty in so far as value added tax was not levied on charges for the II — Pre-litigation procedure use of roads and bridges (tolls) and corre- sponding payments of own resources with interest were not made. 1

3. The Commission raised the question of VAT on tolls in a letter to the Irish authorities on 3 March 1987. The autho- rities replied by letter of 14 December 1987.

9. By letter of 19 October 1989 the Com- mission delivered its reasoned opinion, which covered both the VAT and the own resources aspects of the dispute.

6. By letter of 22 April 1988 the Irish authorities expressed the view that since VAT was not chargeable on the East Link toll bridge toll no further contributions to own resources were due. 10. As regards own resources the Irish Government replied by letter of 23 May 1999 and as regards liability to VAT by letter of 12 October 1990 in which it claimed that the exception provided for ' by Article 4(5) of the Sixth VAT Directive was applicable in this case.

12. The Irish Government contends that the Court should 13. Article 2 of the Directive provides:

'The following shall be subject to value added tax: (1) declare that in not subjecting tolls for the use of existing toll roads and toll bridges in Ireland to value added tax and by failing to make available to the Commission the amounts of own resources and interest for late payment 1. the supply of goods or services effected Ireland has not failed to fulfil its for consideration within the territory of obligations under the EC Treaty; the country by a taxable person acting as such;

(2) order the Commission to bear the costs. 2 — OJ 1977 L 145, p. 1.

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14. Under Article 4(1), (2) and (5) of the fees, contributions or payments in connec- Directive: tion with these activities or transactions.

3 — Annex D lists a total of 13 types of activity, including telecommunications, the supply of water, gas, electricity, pott and airport services, and the running of trade fairs and exhibitions. 4 — Article 13(A) lists 17 exemptions for certain activities in the public interest. Thus inter alia the following are exempt from tax: the supply of services by the public postal services, hospital and medical care, the supply of services and of 5. States, regional and local government goods closely linked to welfare and social security work and to the protection of children and young persons, supply of authorities and other bodies governed by services for their members by non-profit-making organisa- tions with aims of a political, trade-union, religious, public law shall not be considered taxable patriotic, philosophical, philanthropic or civic nature, and activities of public radio and television bodies other than persons in respect of the activities or those of a commercial nature. Article 13(B) provides for transactions in which they engage as public further exemptions for insurance and reinsurance transac- tions, certain credit activities and — with four excep- authorities, even where they collect dues, tions — the leasing or letting of immovable property.

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15. Article 13 provides as follows with Z. Own resources regard to other domestic exemptions:

(a) Council Regulation (EEC, Euratom) No 1553/89 of 29 May 1989 on the defi- nitive uniform arrangements for the collec- 'Without prejudice to other Community tion of own resources accruing from value provisions, Member States shall exempt the added tax 5 following under conditions which they shall lay down for the purpose of ensuring the correct and straightforward application of the exemptions and of preventing any possible evasion, avoidance or abuse:

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(b) Council Regulation (EEC, Euratom) by own resources deriving from gross No 1552/89 of 29 May 1989 implement- domestic product in order to provide the ing Decision 88/376/EEC, Euratom on the rest of the financing, which results in a system of the C o m m u n i t i e s ' own redistribution of the burden to the detri- resources 6 ment of the other Member States.

18. Article 11 provides:

'Any delay in making the entry in the account referred to in Article 9(1) shall give IV — Arguments of the parties rise to the payment of interest by the Member State concerned at the interest rate applicable on the Member State's money market on the due date for short- term public financing operations, increased by two percentage points. This rate shall be increased by 0.25 of a percentage point for each month of delay. The increased rate shall be applied to the entire period of 20. The Commission points out first that delay.' the system of tolls in Ireland is regulated first by the Local Government (Toll Roads) Act 1979, and subsequently by the Roads Act 1993. 8Under this legislation a Road Authority may charge tolls for the use of certain roads. The amount of the toll is set by that authority. The powers of road (c) Council Decision 88/376/EEC, Eura- authorities are exercised by local authori- tom, of 24 June 1988 on the system of ties or in the case of national roads by the the Communities' own resources 7 National Roads Authority. A Road Author- ity may, with the consent of the Minister for the Environment, enter into an agree- ment with another person by which the latter undertakes to finance a new road and to operate a toll system on it. Such an 19. Under this decision the missing income agreement can cover some or all of the from VAT own resources is to be made up costs of constructing and maintaining the road. 6 — OJ 1989 L 155, p. 1. 7 — OJ 1988 L 185, p. 24, partly repealed or amended by Council Decision 94/728/EC, Euratom, of 31 October 1994 8 — The rules in force since 1979 were reproduced in the 1993 on the system of own resources of the European Commu- provisions. The Commission therefore assumes that the nities, OJ 1994 L 293, p. 9. legal position has been the same since 1979.

25. Nor can there be any question of an exemption under Article 4(5)(1) of the 23. As the terms 'supply' and 'economic Directive in the present case, as the opera- activity' must be interpreted in accordance tion of infrastructure on payment of a toll with Community law, the fact that a is not an activity of a body governed by private operator carries out activities which public law which is incumbent upon it as a contribute to the general good does not public authority. Since this Article also affect the position taken by the Commis- constitutes an exception to the definition sion. of taxable person, it, too, must be con- strued narrowly.

24. Contrary to the view of the Irish Government, there can be no question of an exception under Article 13B(b), under which the leasing or letting of immovable 26. The Commission observes that the Irish property is exempt from VAT. The Com- legislation allows businesses not covered by mission argues that there are three essential public law to operate a road and collect a

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toll. In such circumstances the businesses that inequalities between the Member are private economic operators. States of the Community in respect of the collection of own resources have arisen.

29. As regards own resources the Commis- 32. The essential elements of leasing listed sion therefore concludes that the wrong by the Commission are not derived from basis of assessment was chosen through the Directive. In the present case there is an failure to levy VAT on tolls, with the result identified area — the road or bridge to be

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crossed — which is made available to the 35. A public authority is always at the root user for an agreed period of time — the of the activity in question. The third parties time taken to travel along the road or authorised to collect the tolls are not acting bridge. 9 For this rental the user pays independently. The supply of infrastructure consideration — the toll — the price of for public use is and remains an exercise of which is fixed by a public authority. public authority by public bodies. The user of the infrastructure pays the toll because the public bodies have a right to it in exchange for the provision of infrastruc- ture.

33. The transaction does not grant the user any right of possession but a classic land- lord and tenant relationship is not required as the other activities listed in Arti- 36. If, in the present case, tolls are not cle 13B(b) demonstrate. 10 These are not subject to VAT, there can be no question of typical examples of leasing either so there is Ireland's contributions to the Community's no reason why the present case should not own resources being too low. The Com- be covered by the term too. mission's action is therefore unfounded in respect of this claim too.

38. The supply of services consists here in the provision of infrastructure. 42. There is thus a supply subject to value added tax within the meaning of Article 2 of the Sixth VAT Directive.

39. Those services are supplied in return for consideration — the toll levied. On the question whether services are being provi- ded for consideration the Court has ruled that, for the provision of services to be (b) Taxable persons taxable, there must be a direct link between the service provided and the consideration received. 11

43. Under Article 4(1) and (2) of the Directive, a taxable person is any person who independently carries out any eco- 40. There is such a direct link in that a toll nomic activity — and that includes all is paid for the provision of infrastructure, activities of producers, traders or persons the amount of which, in turn, depends on supplying services. the type of vehicle concerned and the length of the road.

44. Under Article 4(5)(1) of the Directive, States, regional and local government 41. The toll itself is not a tax, as a tax is a authorities and other bodies governed by payment of money, which is not made in public law are not to be considered taxable persons in respect of the activities or transactions in which they engage as public 11 — Case 102/86 Apple and Pear Development Council v authorities. This is so even where they Commissioners of Customs and Excise [1988] ECR 1443, paragraph 11. collect dues, fees, contributions or other

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46. This means, first, that not all activities of bodies governed by public law are automatically exempt from tax, but only those which also serve to discharge a specific responsibility in the exercise of 49. Since, under Article 6(1) of the Sixth public authority. Second, an activity carried VAT Directive, even activities carried out in on by a private individual is not exempted pursuance of the law are taxable, it is clear from VAT merely because it consists in that the mere fact that an activity falls carrying out acts falling within the prero- within the remit of public law is not gatives of the public authority. 13 sufficient to fulfil the requirements for VAT exemption in Article 4(5)(1). As that provision constitutes an exception to the definition of taxable person, it must be interpreted strictly. Thus, only those activ- ities of public authorities which constitute 47. The subject-matter or purpose of the the essential core of State activity can be activity of the public body does not deter- considered exempt from VAT. This is also confirmed by Article 4(5)(3), which refers to the activities listed in Annex D (see 12 — Case 107/84 Commission v Germany [1985] ECR 2655, Case 235/85 Commission v Netherlands [1987] ECR 1471 and Joined Cases 231/87 and 129/88 Carpaneto and Others [19891 ECR 3233, paragraph 12. 13 — Commission v Netherlands, cited above at footnote 12, 14 — Carpaneto, cited above at footnote 12, paragraph 15. paragraph 21. 15 — Carpaneto, cited above at footnote 12, paragraph 16.

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(bb) Economic activity economic life in some way or other. 17 In the present case, the road infrastructure is provided, on payment of a toll, by the competent authorities or by third parties to whom the activity is delegated.

53. As I have already pointed out, under Article 4(1) of the Directive any person who independently carries out any eco- nomic activity is deemed to be a taxable person.

57. Even if such delegation is subject to public law and the toll roads form part of the public roads network, this is of no relevance in determining whether there is 54. Article 4(2) of the Sixth VAT Directive an economic activity. Under Article 6(1) of defines economic activity as 'all activities of the Sixth VAT Directive taxable transac- producers, traders and persons supplying tions may include the performance of services'. services in pursuance of an order made by or in the name of a public authority or in pursuance of the law. The objective nature of the definition of economic activity also calls for the classification of the activity in this case as an economic one as the activity itself must be considered, regardless of its 55. The Court has consistently held that purpose or result. the scope of the term 'economic activities' is very wide, and that the term is objective in character, in the sense that the activity is considered per se and without regard to its purpose or results. 16

58. Consideration of the actual economic situation is a fundamental criterion for the 56. Under this wide definition of economic application of the common VAT system. 18 activity it is not necessary for services to be In the present case this means that given primarily or exclusively orientated towards parts of the roads infrastructure are made the market or economic life. It is sufficient available to road users on payment of a that they are actually connected with toll. As this activity is thus also carried out

60. Under that Article the provision of infrastructure on payment of a toll would be exempt from tax if it constituted the letting of immovable property.

64. The provision of roads infrastructure on payment of a toll does not, however, fulfil that condition. It is true that an identified area of space (the road travelled 61. There is no definition of this term along) is made available to the user for an under Community law in the relevant agreed period of time (the length of the legislation. To clarify its meaning we must, journey) in exchange for payment. How- therefore, look at the context in which it is ever, the characteristics of a letting do not used, taking account of the general struc- predominate here, as the user's priority is to ture of the Sixth VAT Directive. travel along a given stretch of road as

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(d) (In the alternative) Distortion of com- petition

67. The chief purpose of the 'contract' between the parties is not so much the use of the property as the one-time provision of a service using that property. For car 70. Under Article 4(5)(2) States, regional drivers the brief use of the property is in and local government authorities and other fact of secondary importance, as their bodies governed by public law are consid- priority is to reach their destination quickly ered taxable persons even in respect of the and safely. activities or transactions in which they

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engage as public authorities, where treat- misapplication of the law. Following clar- ment as non-taxable persons would lead to ification by the Court, the Member States significant distortions of competition. In will certainly levy VAT in a uniform the light of the observations made above, manner. (The same will then be true of this sub-case should not require analysis as payments to own resources.) If the Com- such activity must be considered not to mission's argument is taken to its logical form part of State activities. The following conclusion, distortions of competition analysis is thus given only in the alterna- would most of all prejudice those countries tive. where no road tolls are levied at all.

71. A distortion of competition in the 73. There are thus no distortions of com- above sense would arise where a non- petition within the meaning of Arti- taxable State body was competing for the cle 4(5)(2) which would justify treatment supply of the same services with a taxable as a taxable person. However, as I private person and was therefore able to explained in points 37 to 68, that is not offer its services at a lower price because of the key issue. In the present case there is a the tax exemption. In the provision of road supply subject to VAT because the levying infrastructure such as we are concerned of the toll is not a State activity. with here there is, however, no competitor covered by private law, so that there can be no competition either.

76. Since, in the present case, services were 3. Temporal limitation on the effects of the supplied by taxable persons, VAT should judgment have been levied on the toll. However, as this did not happen, the relevant amounts for fixing the VAT resources base could not be taken into account. 79. Once it is established that Ireland has failed to fulfil its obligations under the EC Treaty, the question arises whether the Commission is also entitled to enforce the claims it has against Ireland as a result in respect of the whole period concerned.

77. This constitutes a breach of Commu- nity provisions on the payment of own resources from VAT. It is of no relevance that the recalculation of contributions to 80. In proceedings for failure to fulfil own resources would lead to financial obligations, Member States are required imbalance in the Community. Under the to take all necessary steps to remedy the relevant Community legislation it is only failure to fulfil obligations, where the important for those own resources to be action is well founded. However, since the calculated according to the correct base application is for a declaration, the Court and the payments required of the taxable persons (by the Member State) to be established. It is thus the duty of the 19 — Case 54/87 Commission v Italy [1989] ECR 385, para- Member States to make the necessary graph 12.

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82. The practical implications of Ireland's obligation to remedy its failure to fulfil Treaty obligations and the effect of the length of the proceedings must therefore be considered. 84. Nor can the claims of the Communities be considered to be time-barred in the present case. First, there are no provisions of Community law regarding limitation of actions which would be applicable and, second, it is not possible to apply the 83. Since, under Article 155 (now Arti- national rules regarding the limitation of cle 221 EC) and Article 169 of the EC actions for tax debts. To fulfil its purpose, a Treaty, the Commission is bound to bring limitation period must be established in proceedings in respect of every failure to advance. As it constitutes a plea it must be fulfil Treaty obligations of which it properly raised, which it was not in the becomes aware, it has a fundamental duty present case. As no submissions were made to bring proceedings. However, it has a in that connection there is no need to certain discretion, particularly as regards discuss this point further. Moreover, no the time and manner of implementing the various stages of the procedure under Article 169. Despite its fundamental duty 20 —Case 7/71 Commission v France [1971] ECR 1003, paragraphs 5 and 6. to bring proceedings, the Commission 21 — Case C-317/92 Commission v Germany [1994] ECR should always strive to enable Member I-2039, paragraph 4, and Case C-422/92 Commission v Germany [1995] ECR I-1097, paragraph 18 and the States to restore conformity with the Treaty references contained therein. in the usual manner. The earliest possible 22 — Case C-96/89 Commission v Netherlands [19911 ECR I-2461, paragraphs 15 and 16. time at which an action can be brought is 23 — Footnotes 21 and 22.

87. The Treaty makes no express provision for a temporal limitation on the effects of 88. However, in the present case, there is a judgments in proceedings for failure to claim by the Communities for payment fulfil Treaty obligations. However, that is from the defendant Member States not in fact necessary since a judgment in attached to the declaration of failure to proceedings for failure to fulfil Treaty fulfil Treaty obligations. The financial obligations is of a declaratory nature and implications of this also require careful is generally intended to remedy (for the consideration from the point of view of future) a situation which is contrary to the legal certainty. Treaty. This type of proceedings does not concern the validity of a particular decision as does an action for annulment, the effects in time of which can be limited under the

24 — Under Article 7(1) of Regulation No 1553/89, before 31 July the Member States are to send the Commission a 89. On the face of it, the fact that the Court statement of the total amount of the VAT resources base has consistently held that 'certainty and for the previous calendar year. 25 — Case 57/69 ACNA v Commission [19721 ECR 933, foreseeability are requirements which must paragraphs 29 and 31 to 32. be observed all the more strictly in the case

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of rules liable to entail financial conse- would also be ruled out under national law quences' constitutes an argument against for reasons relating to the protection of temporal limitation. 26 Weighing up con- legitimate expectations. Quite apart from siderations of legal certainty diminishes that, the practical consequences of retro- such certainty and foreseeability. However, spective collection of VAT would be unrea- it must also be said that the considerable sonable in the case of business traffic as the delay by the Commission in instituting tax debtors who might have to be tracked proceedings for failure to fulfil Treaty down are generally not those who pay the obligations cannot be reconciled with the tax included in the prices. requirements of certainty and foreseeability either.

93. It is clear from the time-limit in Arti- cle 9(2) of Regulation No 1553/89 that Member States are not intended to be exposed for more than four years to the risk of paying to the Community a percen- 91. On the other hand, retrospective col- tage of VAT which has mistakenly not been lection of VAT on fees paid for the use of levied. On the other hand, Member States roads must be ruled out for both practical have in principle no protection if they have and legal reasons. In a case such as the notice of a clear objection of the Commis- present one retrospective collection of VAT sion before expiry of the time-limit. It is the responsibility of the Member State con- cerned if it does not act on an objection by 26 — Case C-30/89 Commission v France [1990] ECR I-691, paragraph 23 and the references contained therein. the Commission and, for example, fails to 27 — Case C-96/89, cited above at footnote 22, paragraph 37. levy VAT generally. Having notice of the

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objection it is able to assess in principle the years are closed and no correction is to be obligations which arise from the VAT made. Directive and proceed accordingly.

95. Moreover, the Member States cannot settle the matter themselves, if the proceed- ings for failure to fulfil Treaty obligations stagnate, as here, in the pre-litigation 98. It is clear from the Commission's letter phase. The Commission is not bound to of formal notice of 20 April 1988 amongst bring an action and the Member State the documents on the Court file that the cannot challenge the reasoned opinion. Commission's claims relate to the period Taken together, these factors could be an from 1984 until cessation of the alleged incentive to circumvent proceedings for infringement. It must therefore be assumed failure to fulfil Treaty obligations. How- that this is the period at issue in the Court ever, such conduct on the part of the action too. Although the Commission took Commission would be contrary to the spirit no further action in respect of subsequent of the correction procedure. years between the end of the pre-litigation procedure and the bringing of the action, it must be assumed that its intention was to put an end to the infringement with all that this implied for the subsequent years. The extent to which the financial years since 96. In the context of the Commission's 1984 are now closed so that the annual relationship to the Member State, it must statements cannot now be corrected must be considered that the previous financial therefore be examined.

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100. However, it is not clear how the exception in the second part of Article 9(2) is to be understood. It states, on the subject of the annual statements to which no 102. Whilst the objective of this provision corrections may be made: 'unless they is to grant an extension of the time allowed concern points previously notified either in complex cases raising many problems, by the Commission or by the Member State the parties must be seen to be making an concerned.' For the 1984 to 1990 financial effort to reach a solution; otherwise the years, the underlying issues and various Commission could circumvent the 43- legal points which also underlie this appli- month time-limit under the first part of cation were discussed with Ireland. Article 9(2) by routinely raising objections to the Member States' annual statements. It would then be able to investigate the circumstances for an unlimited time and postpone the closure of the financial year indefinitely. However, that would be nei- ther desirable on economic grounds, nor 101. There is a strong case for interpreting compatible with the principle of legal the second part of Article 9(2) to mean that certainty. The Commission would be able, exceptions to the 43-month time-limit are without having to justify it, to circumvent only to be allowed if those concerned have the requirements of the first part of Arti- continued in the intervening period to make cle 9(2) according to which the time-limit an effort to solve the problems raised. for the closure of the annual statements is However, if the proceedings come to a 31 July of the fourth year following the lengthy and unwarranted standstill, it relevant financial year. would be contrary to the spirit and purpose of the provision to continue to apply it. In the present case there was not sufficient 28 — At the oral procedure, the United Kingdom and Greece disputed that there had been any dialogue with the further dialogue in the years between 1990 Commission.

108. Under Article 69(2) of the Rules of Procedure, the unsuccessful party is to be ordered to pay the costs if they have been applied for in the successful party's plead- ings. The Commission has asked for Ireland 106. The principle of the protection of legitimate expectations and the general timetable resulting from the 43-month 29 — See point 98 for the calculations.

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to be ordered to pay the costs. Although the cannot be realised through this action. The claim for payment of contributions to own subject at issue in the present case is only resources has partially exceeded the time- the declaration of conduct contrary to the limits, this has no implications for a costs Treaty. As Ireland has essentially been order as this claim is only a consequence of unsuccessful, it should be ordered to pay the declared failure to fulfil obligations and the costs.

G — Conclusion

109. For the foregoing reasons I therefore propose that the Court should rule as follows: