C-414/97

OPINION OF MR SAGGIO — CASE C-414/97

OPINION OF ADVOCATE GENERAL SAGGIO delivered on 18 March 1999 *

1. The action in this case is for a declara- that imports of goods (into the territory of tion that, by exempting from value added the Community) and intra-Community tax (hereinafter 'VAT') intra-Community acquisitions of goods are to be subject to imports and acquisitions of arms, ammuni- VAT. Article 14 of the same directive then tion and equipment exclusively for military lists the exemptions laid down for the use, the Kingdom of Spain infringed Coun- importing of certain goods into the terri- cil Directive 77/388/EEC of 17 May 1977 tory of the Community and Article 28c(B) on the harmonisation of the laws of the those allowed for intra-Community acqui- Member States relating to turnover sitions of goods. Article 28(3)(b) also pro- taxes — Common system of value added vides that, during the transitional period, tax: uniform basis of assessment (herein- the Member States may 'continue to after the 'Sixth VAT Directive'),1 and that exempt the activities set out in Annex F therefore it failed to fulfil its obligations under conditions existing in the Member under the EC Treaty. State concerned' at the time when the Sixth Directive entered into force, that is on 1 January 1978. Points 23 and 25 of that Annex list, among others, the operations relating to aircraft used by State institutions and warships. Paragraph 4 of the same article states that 'the transitional period shall last initially for five years, as from 1 January 1978.' 3 Finally, paragraph 3a of Legislative framework, facts of the case and the same article, introduced by Directive procedure 91/680, already mentioned above, autho- rised Spain to exempt the operations described in points 23 and 25 of Annex F from VAT.4

3. On 1 January 1986, in order to comply 4. By notice of 7 February 1990, the Com- with the conditions for accession to the mission initiated an infringement procedure Community and in particular those stated against Spain, charging it with having in Article 395 of the Treaty of Accession,5 exempted from VAT, by the aforemen- Spain introduced value added tax into its tioned law of 1987, a number of intra- own legal system, by Law No 30/85 of Community acquisitions and imports of 2 August 1985, 6but without stating any military equipment, contrary to Arti- specific exemption for intra-Community cle 2(2) of the Sixth Directive. The Spanish imports and acquisitions of armaments. In authorities replied by letter of 7 May 1990. addition, in the Act of Accession no In a reasoned opinion sent on 6 August exemptions were stated, in favour of Spain, 1996, the Commission charged Spain with for operations relating to the aforemen- breach of its obligations under the Sixth tioned goods. Exemptions to that effect Directive for having introduced those were, however, introduced unilaterally by exemptions. As Spain did not comply with the opinion within the time prescribed, the Spain by Law No 6 of 14 May 1987. 7 Commission brought this action on Under that law, concerning budgetary 5 December 1997. appropriations for investments and operat- ing costs of the armed forces, intra-Com- munity imports and acquisitions 'of arms, ammunition and equipment exclusively for military use' which were necessary to carry out the programme to modernise the mate- rial, equipment and armaments of the armed forces for the period 1986/1994 were exempt from VAT.8 That law entered into force on 14 May 1987, but was The merits of the case effective as from 1 January 1986.

tional period. The only other exemptions Spain to fulfil its obligations unaltered and allowed are, according to the Commission, undiminished in respect of the period from those which may be provided for by the the entry into force of Law No 6/87 to the Acts of Accession of the new States to the date on which the Spanish Government European Community. According to the obtained authorisation to allow the afore- Commission, none of these exemptions mentioned limited exemption. applies in this case. On one hand, neither Article 14 nor Article 28c deals with opera- tions similar to those in point in Spanish Law No 6/87, nor, on the other hand, could Article 28(3)(b) — which, as has already been stated, concerns the possibility of maintaining some exemptions existing in the Member State concerned at the time the directive entered into force — legitimise the exemptions in question since the aforemen- tioned law which introduced them was enacted in May 1987 and therefore after the Act of Accession entered into force. The Commission points out that the situation would have been different if a clause had 6. The Spanish Government contends, pri- been inserted in the Act of Accession marily, that the exemptions from VAT for operations relating to military equipment allowing Spain such a possibility. contained in Law No 6/87 are compatible with Community law since they constitute safeguard measures under Article 223(l)(b) of the EC Treaty because they are 'neces- sary for the protection of the essential interests of their security' and refer to 'the production of or trade in arms, munitions and war material'. The purpose of the exemptions in the Spanish Law of 1987 was to guarantee the attainment of the essential objectives of the overall strategic plan (Plan Estrategico Conjunto), ensuring the effectiveness of the Spanish armed forces in relation to their duties of national defence, and also in carrying out the commitments undertaken by Spain as part According to the Commission, the possibi- of NATO. In support of its contention the lity allowed to Spain under Directive Spanish Government referred to the pre- 91/680 of exempting the operations men- amble to Law No 6/87, which states that tioned in points 23 and 25 of Annex F to the main objective of the law in question is the Sixth Directive (operations concerning to 'define and allocate the necessary finan- warships and aircraft) does not totally cial resources to achieve the process of eliminate Spain's failure to fulfil the Com- reinforcing and modernising... the armed munity obligations deriving from the enact- forces, creating the economic and financial ment of Law No 6/87. The granting of such basis of the overall strategic plan'. The a possibility in any event left the failure of Spanish Government also argues that the

abolition of the exemption from VAT for those States which, like Spain, became armaments would, contrary to the Com- Members of the Community after that mission's assertion, have considerable date, as otherwise there would be discrimi- financial consequences and points out in nation in treatment between 'old' and 'new' this respect that the increase in costs which Member States in the conditions of compe- this abolition would have involved would tition which are the inspiration behind the have been about ESP 3 million for 1998. Community rules on fiscal harmonisation and this would give considerable competi- tive advantages to the 'old' Member States, without any justification. According to Spain, therefore, the new Member States must also be able to make use of the right described in Article 28(3)(b) of the Sixth Directive, even if it is not specifically laid down in the Treaty of Accession. The Commission disputes that contention, stating that it cannot be taken into con- sideration in these proceedings as it had not been made in the pre-litigation phase. It then submits, on the merits, that the imposition of VAT on imports of arma- ments would not prejudice Spanish inter- ests because the burden for the State would be quite modest and because, in any case, even though they were required to do so, the Spanish authorities did provide any evidence of the damage which the imposi- tion of VAT on the operations in question could have caused to the essential interests of national security. 8. Finally the Spanish Government points out that the exemptions in question were introduced into its domestic legal system by Law No 44 of 7 July 1982, 9 which exempted imports of materials for the armed forces from equalisation tax, and that the national legislation (Law No 30/1985, mentioned above) which introduced VAT following the accession of 7. The Spanish Government then submits Spain to the Community carried over, as that, in any case, the exemptions from VAT from its entry into force, that is from contained in Law No 6/87 must be regar- 1 January 1986, this favourable regime. ded as legitimate under Article 28(3)(b) of The exemptions from VAT for operations the Sixth Directive, which allows Member concerning military equipment therefore States to continue to exempt the operations already existed in Spain at the time when stated in Annex F from VAT under the it joined the Community and for that conditions applicable under their law at the reason, under Article 28(3)(b), they must time when the Directive entered into force, and that is on 1 January 1978. Arti- cle 28(3)(b) must also apply in favour of 9 —BOE of 21 July 1982.

9. Under Article 2(2) of the Sixth Directive 11. With regard to the alleged application all imports of goods into the territory of the of-the safeguard clause in Article 223(l)(b) European Community are to be subject to of the EC Treaty to the imports and VAT, 10 with the exception of those acquisitions of arms, referred to in Spanish exempted under Article 14 of the same Law No 6/87, I would recall that this Directive. Under Article 28a, all intra- provision states that 'every Member State Community acquisitions which are may take the measures it considers neces­ imported for a valuable consideration into sary for the protection of the essential the country by a taxable person acting as interests of their security which are con­ such are also subject to VAT, with the nected with the production of or trade in exception of the operations exempted in arms, munitions and war material.' accordance with the aforementioned Arti­ cle 28c(B). There can be no doubt that the imports and acquisitions of military equip­ ment, to which Spanish Law No 6/87 applies, fall within the scope of the Sixth Directive. On this point the Commission first raises the objection that the Spanish Government cannot request the application of this provision in these proceedings, as it did 10. That point having been settled, it must not make a similar request at any time first be established whether those opera­ during the pre-litigation procedure. In tions may — in accordance with the Span­ other words, according to the Commission, ish Government's primary submission — this issue raised by Spain is out of time and be considered to be justified under the cannot therefore be taken into considera­ safeguard clause in Article 223(l)(b) of the tion here. The Commission's objection does EC Treaty, and second, whether, as con­ not appear to me to be well founded as there is no ad hoc procedural provision which requires a correspondence between 10 — According to the Court (Case 15/81 Schul [1982] ECR the arguments put forward in the pre- 1409, paragraph 14) the generating fact for VAT on imports 'is the mere entry or goods into a Member State, litigation phase and those put forward whether or not there is a transaction and irrespective of subsequently before the Court; further­ whether the transaction is carried out for valuable consideration or free of charge, be it by a taxable person more, it does not appear to be possible or a private person.' This is confirmed by Case 39/85 for such a rule to be elaborated by case-law, Bergeres-Becque ν Service Interregional des Douanes [1986] ECR 259, paragraph 7. because this would offend against the

general principle of the free and full the burden of proof, States which contend exercise of the rights of defence before the for the application of that provision must Court. It should be added that the case-law demonstrate that the measures adopted are relied on by the Commission in support of necessary for the protection of the national its submission is not relevant. It refers to a security interests. It must therefore be different situation, which is not compar- determined whether or not Spain has able, namely that of a State against which furnished proof that the exemptions stated an action is brought under Article 169 of in Law No 6/87 are necessary in order to the EC Treaty and to which the rights of attain that objective. In this case, it does defence are guaranteed; it is only with not seem to me that this proof has been reference to that specific situation that it furnished. And even if, contrary to the states that 'the action cannot be founded on Commission's assertion, the intention of any complaints other than those formu- the Spanish legislature to protect national lated in the reasoned opinion.' 1 1In the case interests in the matter of security by before us, however, application of the same guaranteeing the process of reinforcing principle would entail a converse reason- and modernising the armed forces were ing, designed to limit, and not to reinforce, evident from the preamble to that law, it is the rights of defence of the State in proceedings brought by it against the hard to see why the exemptions from VAT institution. would be necessary to attain that objective, in other words how it could be that the imposition of VAT on imports and acquisi- tions of armaments would entail for the finances of the State a burden of such dimensions as to jeopardise the objective in

In Arti- which the Court, referring to Articles 36, 224 and 226 of cle 2(4) of this decision it is stated that 'the uniform rate. . . the EC Treaty, states that 'although these provisions attach shall correspond to the rate calculated as follows: applica- particular importance to the interests of Member States, it tion of. . . 1.08% in 1998, 1.00% in 1999 to the VAT must be observed that they deal with exceptional cases assessment based for the Member States' and that 'the rate which are clearly defined and which do not lend them- of 1.00% laid down for 1999 shall remain applicable until selves to any wide interpretation.' the.

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fore have any impact on the shaping of the Sixth Directive, which list the intra-Com- decision in the present case. munity imports and acquisitions which are exempt, cannot in any way be made to relate to the operations concerning military equipment in point in the Spanish law in question. The provision of the Directive which concerns the exemptions, and to which the Spanish Government essentially refers as a basis for demonstrating the legality of its own legislation relating to military equipment, is Article 28(3)(b), 13. It must therefore be concluded that the under which the Member States may con- Spanish Government has not demonstrated tinue to exempt the operations stated in that the abolition, in Law No 6/87, on the Annex F during the transitional period, and exemption from VAT of imports and acqui- these include, in points 23 and 25, those sitions of armaments, ammunition and relating to aircraft used by State institutions other military equipment constitutes a and warships. The operations indicated measure which can compromise the protec- concern, (a) 'the supply, modification, tion of the essential interests of the security repair, maintenance, chartering and hiring of Spain, with the result that the exemp- of aircraft, used by State institutions and tions contained in Spanish Law No 6/87 also the supply, modification, repair, main- cannot be considered justified under Arti- tenance, chartering and hiring of equip- cle 233(l)(b) of the EC Treaty. It is even ment incorporated or used therein' and (b) unnecessary to add that, as the safeguard 'the supply, modification, repair, mainte- clause stated in Article 223(l)(b) of the EC nance, chartering and hiring of warships.' Treaty has been found to be applicable to this case, there is no need, contrary to what is stated by the Commission, to determine whether Spain has abused, in the sense contemplated in Article 222 of the Treaty, the powers referred to in that provision.

military equipment that are exempted by not exist under Spanish law at the time of the Spanish law, specifically only those that Spain's accession to the Community. Such concern aircraft used by State institutions an interpretation would guarantee equal and warships. A wide interpretation of treatment of 'old' and 'new' Member these exemptions would conflict with the States. That argument is not convincing. It rule of ordinary law according to which should be emphasised that the 'new' Mem- provisions containing exceptions (the pro- ber State has the right to introduce the visions on exemption from VAT are in this exemptions in question even if it joined the category) are to be interpreted strictly. The Community after the Sixth Directive Court has repeatedly stated that 'the terms entered into force and even if that right used to describe the exemptions... of the was not contemplated in the Act of Acces- Sixth Directive are to be interpreted strictly sion, but provided that, from the date of since these constitute exceptions' to a accession, the legal system of the 'new' general principle. 14 In addition, the Span- State provides for exemptions similar to ish Government does not provide any those appearing in Annex F to the Sixth analytical demonstration with regard to Directive.15 This interpretation does not relating the exceptions stated in points 23 give rise to discrimination between 'old' and 25 to the legislation in Law No 6/87. and 'new' States belonging to the Commu- nity, as the system applicable is the same for all States from the moment they become members of the Community.

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Spanish Law No 6/87 which can be vincing. It is based on an interpretation of brought under points 23 and 25 of Annex the provision which is manifestly contrary F already existed at the time when Spain to its purpose — to allow limited exemp- joined the Community and that, conse- tions for a transitional period in order to quently, they are lawful from the point of enable a progressive adjustment of the view of Community law. national laws to the directive — and essen- tially amounts to according, irrationally, to the new Member States the power to circumvent requirements of the Directive.

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COMMISSION V SPAIN

failure to fulfil the obligations arising from materials and the application ratio tem- the Sixth Directive, both because the poris of the exemption, continues to exist exemptions laid down by the Spanish and must be the subject of a declaration to legislation can only partly be brought that effect. within the ambit of those which appear in the above points, and because in any case, for the whole of the period from the entry of Spain into the Community until Direc- tive 91/680 entered into force, the Spanish 20. For all the above reasons, the action authorities were not entitled to introduce brought by the Commission against the into their legislation any exemption in Kingdom of Spain must succeed. relation to operations concerning military equipment, including the material specified in points 23 and 25.

Costs 19. In conclusion, my opinion is that the operations which Spanish Law No 6/87 exempts from VAT are lawful from the point of view of Community law only in so 21. The Kingdom of Spain is the unsuccess- far as they concern aircraft and warships ful party. Under Article 69(2) of the Rules used for military purposes and only from of Procedure, the unsuccessful party is to be the entry into force of Directive 91/680. ordered to pay the costs if they have been Outside this limited sphere, the failure to applied for. As the Commission has asked fulfil obligations with which Spain is for costs, the Kingdom of Spain must be charged, as regards both the question of ordered to pay them.

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