C-404/99
ECLI:EU:C:2000:651
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COMMISSION V FRANCE
OPINION OF ADVOCATE GENERAL MISCHO delivered on 23 November 2000 1
1. This action by the Commission of the 3. What the Commission alleges against the European Communities against the French French Republic is not at all the absence of Republic for failure to fulfil its obligations legislative provisions correctly transposing with regard to the implementation of the the Sixth Directive but the official tolera- Sixth Council Directive 77/388/EEC of tion, at the level of administrative practice, 17 May 1977 on the harmonisation of the of deviations from the implementing laws of the Member States relating to national law, which itself is in complete turnover taxes — Common system of harmony with the Sixth Directive. value added tax: uniform basis of assess- ment 2 ('the Sixth Directive') once again leads the Court to consider, though in a somewhat unusual way, the question of national administrative practices in regard to the obligations resulting from directives.
4. Article 2(1) of the Sixth Directive pro- vides:
2. Generally, a Member State which the Commission alleges has not correctly trans- 'The following shall be subject to value posed a directive puts forward as its added tax: defence, with more or less conviction, the fact that, even if the national legislature has not acted to implement the directive, the authorities have done everything necessary, usually by issuing a circular, to ensure that the directive is in practice given effect in national law, but the case we have today is the opposite. 1. the supply of goods or services effected for consideration within the territory of 1 — Original language: French. the country by a taxable person acting 2 — OJ 1977 L 145, p. 1. as such;'
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and Article HA(1)(a) states that: and that:
'1. The taxable amount shall be: 'The taxable amount shall include:
(a) in respect of supplies of goods and 1. Taxes, duties, levies and charges of any services other than those referred to in kind, excluding the value added tax itself. (b), (c) and (d) below, everything which constitutes the consideration which has been or is to be obtained by the supplier from the purchaser, the custo- mer or a third party for such supplies including subsidies directly linked to 2. Expenses incidental to supplies of goods the price of such supplies.' or services, such as commissions, interest, packing, transport and insurance costs charged to customers.'
5. The Commission accepts that the French Republic has transposed these measures correctly, since Articles 266-1 A and 267-1 6. According to the Commission, the of the Code general des impôts provide French Republic has nonetheless failed to respectively that: fulfil the obligations arising from the arti- cles of the Sixth Directive cited above in authorising, by means of an administrative instruction published in the Bulletin officiel de la direction générale des impôts of 31 December 1976 making permanent a 'The taxable amount shall be: previous practice, certain taxable persons to exclude the service charges claimed from their customers from the taxable amount for value added tax (hereinafter 'VAT').
in respect of supplies of goods and services and intra-Community acquisitions, all sums, assets, goods or services received or receivable by the supplier from the purcha- 7. More specifically, the 'basic documenta- ser, the customer or a third party for such tion' published by the Director-General for supplies including subsidies directly linked Taxation, which taxpayers can rely on to to the price of such supplies.' ascertain the exact extent of their tax
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liabilities, states that: 'according to the (4) the annual return of wages filed by the fixed policy of the administration, price employer shows the total remuneration supplements charged by way of a tip to actually received by the staff remuner- customers of commercial undertakings ated by gratuities. (hotels, restaurants, cafés, brasseries, bars, tea-rooms, hairdressers, clinics, spas, trans- port and removal businesses, rest and retirement homes, casinos, home delivery services of any kind) constitute part of the price on which value added tax is to be levied', but it is indicated that such increases in the price may be excluded 8. For the Commission, this tolerance from the taxable amount for VAT if the amounts to a system of exemption from four following conditions are all satisfied: VAT contrary to Community law, taking the form of a method of determining the taxable amount which fails to comply with the rules laid down in the Sixth Directive, since part of what is invoiced to the customer, and is thus consideration for the service rendered, escapes the tax.
(1) the customer is informed at the outset of the existence of a levy having the nature of a gratuity, and of its percen- tage by reference to the 'service not included' price;
9. In this respect, the Commission states that its criticism is not directed to what it describes itself as 'extra gratuities', and which the French authorities describe as free gratuities, that is to say money which a customer leaves spontaneously and without (2) all 'gratuities' are shared among the obligation to any particular employee. members of staff who have direct contact with the customer;
10. The Commission accepts that these amounts, by contrast with compulsory (3) the payment is accounted for in a service charges, do not need to be included special register signed by each of the in the taxable amount, since they are like beneficiaries, or at least by a staff the donations made by passers-by to a representative; barrel-organ player in the street, in regard
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to which the Court ruled in Case C-16/93 13. In the Commission's view, the four Tolsma. 3In both cases, the payments are conditions laid down in the administrative entirely gratuitous and uncertain, and it is instruction at issue to enable a supplier to practically impossible to ascertain their benefit from the exclusion of service amount. charges from the taxable amount are entirely procedural in character and have nothing to do with the criteria for estab- lishing the basis of assessment for VAT, namely the consideration actually received by the supplier of the service. Reference to these conditions introduces an arbitrary element into the determination of the tax burden on the various suppliers in the same 11. But, in the Commission's opinion, the sector when there is no justification for exclusion of service charges from the tax- treating them differently. able amount cannot be justified when they are of a predetermined amount, are com- pulsory, and do not appear in the exhaus- tive list of sums not included in the taxable amount found in Article 11A(1) of the Sixth Directive. 14. The French Government devotes the main part of its defence to a description of the context in which the administrative instruction of 1976 was issued.
12. Moreover, again in the Commission's 15. It explains that the instruction goes view, the practice at issue is open to the back to a ministerial decision in 1923 objection of being contrary to the principle which accepts that the turnover tax, that of fiscal neutrality, which underlies the is to say the tax which, historically, pre- whole of the Community system of VAT, ceded VAT in the French tax system, should since two taxable persons undertaking not be applied to receipts of obligatory exactly the same activity may be taxed gratuities by hoteliers and restaurant own- differently depending on whether or not ers, and by commercial establishments their invoices show separately the amounts more widely, whenever the whole of the intended as remuneration for their employ- sums received on that account were in fact ees; and this breach of the principle of fiscal paid out to staff. neutrality is itself apt to create distortion of competition, since a different tax treatment of activities carried out in identical circum- stances necessarily has an effect on the conditions of competition.
16. Later, for the purpose of fiscal control, 3 — [1994] ECR I-743. a circular in 1928 made the benefit of this
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concession dependent on there being a 20. The Government also points out that special register showing the collection and the VAT rules applicable to gratuities vary redistribution of such sums. depending on the way in which the service charge is levied, that is, depending on whether prices are displayed as being 'service included' or 'service not included', but the cases of 'service not included' have become marginal since establishments ser- ving meals, food or drinks to be consumed 17. According to the French Government, on the premises have, since the publication the administrative concession was made of a decree in 1987, been required to permanent by a law of 1933 on staff display their prices as 'service included'. remuneration, which adopted the principle that gratuities received as remuneration for service as an obligatory percentage added to bills or otherwise, as well as all sums paid to an employer by customers volunta- rily in respect of service or handled cen- trally by him, should be paid entirely to the 21. In reply to the criticisms of the Com- staff who were in contact with the custo- mission about the anti-competitive effect of mers, and to whom the latter generally gave the concession confirmed by the 1976 the payments. administrative instruction and the arbitrary nature of the conditions it imposes, the French Government draws attention to the fact that it is merely a tolerance, that undertakings are free to apply it or not, the rule remaining that contained in Arti- cle 266-1 A of the Code général des impôts. 18. This law made it possible to provide It adds that undertakings which are not security for staff remunerated chiefly by able to benefit from the tolerance are not gratuities at a time when there was no carrying on business in the same circum- minimum wage. stances as those which can, and that conditions which guarantee the payment to employees of sums received and provide a strict framework for the exemption allowed cannot be characterised as arbi- trary. 19. As to the current situation, the French Government dwells on the fact that only establishments which employ staff who are in direct contact with customers and who are remunerated by means of the service charge included in the price paid by the 22. In its reply, the Commission is content customer, that is to say principally restau- to observe that the explanations provided rants and hairdressers, enjoy the conces- by the French Government about the sion, and that it has opposed the extension historical context of the disputed tolerance of it to self-service restaurants and fast- have no relevance in deciding its compat- food outlets. ibility with the Community system of VAT.
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23. The Commission also points out that, if desire not to disadvantage establishments the exemption from turnover tax for gratu- which paid back all gratuities to their staff. ities to staff could, when it was introduced, be justified by the desire not to penalise those establishments which, instead of leaving gratuities to the discretion of cus- tomers, chose to levy them compulsorily in order to pay them to their staff for whom it 27. In fact, it was the protection of the was frequently the only form of remunera- employees which was sought, and this tion, that is no longer the case today when protection remains of current concern there is a minimum wage and when sums because, notwithstanding the introduction levied by an employer by way of service of a minimum wage, the remuneration of charge have to be paid on to employees. employees in direct contact with customers in the restaurant and hairdressing sectors is still today made up in part of gratuities. Abolishing the tolerance might extend the practice of optional gratuities, which would penalise employees in direct contact with customers, particularly in sectors 24. It is, indeed, in view of this mismatch where the publication of prices as 'service between what might have been a justifica- included' is not compulsory. tion for the exemption at a given moment, and the present legal context, that the Commission had felt justified in describing the four conditions laid down in the administrative instruction of 1976 as arbi- trary. 28. Nor can it be claimed, as the Commis- sion does in its reply, that the publication of prices as 'service included' has become the rule.
25. It appears to the Commission that it is equally impossible to sustain the argument that the limited character of the derogation should be taken into account in assessing its 29. In the hairdressing business, for exam- compatibility with the Community VAT ple, there is no such obligation. For that system. reason, the distinction between establish- ments offering 'service included' prices and those with 'service not included' prices retains its importance.
26. In its rejoinder, the French Government sets out to correct certain errors which it says the Commission has made in its reply. 30. The French Government reiterated, Thus, it is inaccurate to assert that the once more, the limited character of the origin of the tolerance is to be found in a derogation criticised. That itself is the
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consequence of the strict conditions which impôts, but a mere administrative tolerance must be fulfilled by a supplier taking which undertakings are free to apply or advantage of it, and is confirmed by the not. information disclosed by an enquiry con- ducted by the Ministère de l'Économie, des Finances et de l'Industrie (Ministry for the Economy, Finance and Industry) which shows that in the restaurant sector only a few establishments, principally brasseries which employ a large workforce, avail 34. Finally, it points out that the very themselves of it. limited nature of the exemption is such that it falls within the de minimis principle.
Analysis 35. In this respect, it should be borne in mind firstly that under Article 11A(1)(a) of the Sixth Directive the taxable amount for VAT is made up, for supplies of goods and 31. We can see at the outset that the services, of 'everything which constitutes exchange of arguments during the written the consideration which has been or is to be procedure is not much removed from a obtained by the supplier from the purcha- dialogue of the deaf. ser, the customer or a third party...'. More- over, according to the settled case-law reviewed in Case C-258/95 Fillibeck [1997] ECRI-5577, 4 the taxable amount for the supply of goods or services is 32. The French Government never composed of the consideration actually attempts to demonstrate that the practice received for that purpose, which is the in question can be justified by a provision consideration that is in fact received and of the Sixth Directive. It points out simply not a value estimated on the basis of that the practice is of long standing, but is objective criteria. within a strict framework, and has a whole series of advantages as regards the need to guarantee a satisfactory level of income for employees in certain types of establish- ment. 36. The total sum appearing on the invoice to the customer constitutes, obviously and in its entirety, the consideration for the service which has been supplied to him by 33. It goes on to emphasise that the exclu- the restaurateur. sion from the taxable amount for VAT accorded to gratuities is not a rule modify- ing Article 266-1 A of the Code général des 4 — Paragraph 13.
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37. This consideration, unlike that in cer- of other elements which cannot be disso- tain cases which have been before the ciated from it. Court, presents no difficulty in ascertaining its exact amount because, by definition, it is expressed in monetary terms.
41. If the item for 'service charge' in a restaurant bill were to be considered, having regard to the definition of taxable 38. And it is beside the point that an amount in the Sixth Directive, not to be apportionment may be made in the invoice subject to VAT, there would be nothing to between the different elements which, prevent a garage which, in accordance with together, have made up the service sup- usual practice, itemises separately the cost plied. of spare parts and the cost of labour, from claiming the right to treat as outside the scope of VAT some, if not all, of the labour in the invoice for the servicing of the vehicle which could be identified as relating to the activity of the employee who dealt with the customer enquiring about the work which 39. In France today separate invoicing for he wanted done on his vehicle, and who restaurant service is prohibited but, in other delivered it to him when the work was Member States, it systematically appears finished. on restaurant bills as a separate item. Could one really suppose that, in those Member States, the taxable amount invoiced by the restaurateur would not include the sum stated to be for service?
42. I could go on giving examples ad infinitum, but there is no need to do so since it is clear that Article HA(1)(a) of the Sixth Directive requires that all the ele- ments invoiced to a customer by a supplier 40. The customer in a restaurant buys a are to be considered as making up the comprehensive supply, made up of the meal precise consideration for the supply made he is going to eat, the use of the table at to him. which he eats it, whatever he needs to eat it with and the service at the table; and the sum of money which he pays is a compre- hensive payment for that comprehensive supply. To buy a ready-cooked meal from a caterer is to buy goods, whereas to have lunch in a restaurant is to receive the supply 43. The Commission also, as we have seen, of a service which includes the delivery of puts forward an argument to the effect that goods but which comprises a whole series the practice of the French tax administra-
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tion undermines fiscal neutrality and leads 47. We must now examine the relevance of to distortion of competition. the grounds of defence relied on by the French Government, which argues that an establishment fulfilling the four conditions laid down in the administrative instruction of 1976 cannot be said to be conducting its business in conditions identical to those 44. I agree with the Commission that the governing the conduct of an establishment practice at issue is in breach of the principle not satisfying them and which, on that of fiscal neutrality which, in the words of account, is not permitted to exclude its the judgment in Case C-216/97 Gregg service charges from its taxable amount. [1999] ECR I-4947, 'precludes, inter alia, economic operators carrying on the same activities from being treated differently as far as the levying of VAT is concerned'. 5
48. That is why the French Government takes issue with the Commission's descrip- tion in its application of these conditions as arbitrary. The word was such as to shock 45. Two restaurateurs offering exactly the the French authorities, in fact, and there same service, for an identical total price, would have been some advantage, as the but one of whom states on his invoice that Commission concedes in its reply, in repla- a service charge is levied, and the other of cing it by 'without relevance'. But the whom does not state it but does include in Commission's criticism seems to me essen- his invoice a sum corresponding to the tially right in emphasising that the final service charge, will on the basis of the destination of the sums levied as service administrative instruction of 1976 find that charges, and the way in which they are they have differing demands for VAT, dealt with, has nothing to do with the because the taxable amount used as the question of whether these sums should or basis for assessing the tax due will be should not form part of the taxable different for each of them, even though the amount. supply and the consideration for it will have been exactly the same.
49. What is important is to determine the 46. From the difference at the level of the amount of these sums, assets, goods or charge to tax there will flow a difference at services received or to be received by the the level of the profit made from the supplier by way of consideration for the transaction, so that a nonsense will be service which he has furnished. The alloca- made of the principle of fiscal neutrality tion of the sums is wholly irrelevant. What and competition will be distorted. constitutes the taxable amount is not the profit of the supplier but, need I say it, his turnover. That is why the question of what 5 — Paragraph 20. actually becomes of the sums described on
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the invoice as service charges is quite charge on it. But he will still not be able to immaterial in determining the taxable deduct it from his taxable amount since, if amount, unless of course there is any he puts together at the end of the day the provision to the contrary in the Sixth amount invoiced as service charge, there Directive to be taken into account, and will be no allocation of it to salaried staff. no-one in this case has argued that there is If, on the other hand, he does pay it to his any relevant provision in that respect. employee, he will still not be able to deduct it because the beneficiary was not in direct contact with customers.
50. The way in which the supplier provides for the remuneration of the staff whom he relies on to deliver the service which he 53. If, on the other hand, it is the owner supplies is quite immaterial in settling the who is the chef and the employee who taxable amount. That, as the Court has waits on the customers, the amounts held, must correspond to the subjectively invoiced as service charges will be deduc- ascertained value of the consideration tible from the taxable amount if, of course, which the supplier has obtained from the the four conditions are satisfied. customer. The cost of the service to the supplier plays no part in the determination of it, still less does the structure of that cost.
54. If the point of view of the French Government were to be accepted, it would mean that the way in which an undertaking 51. A very specific example, drawn once was organised could influence the amount more from the restaurant sector, will assist of VAT it has to pay, which is precisely in understanding how the principle of fiscal what the Community system of VAT, and neutrality, around which the Community the principle of fiscal neutrality which system of VAT is built, can in no way be underpins it, aims to avoid. reconciled with the French practice under consideration.
55. Lastly, it should be observed, almost as a side-note and still in connection with 52. Let us suppose that a restaurateur those conditions, which the Government conducts his business with a single claims support its practice, that in Annex 1 employee. If the owner is the one who to its defence under the heading 'VAT rules waits on the customers while the employee applicable to gratuities in relation to the is the chef, the 1976 administrative instruc- different ways of charging for service' the tion will offer no possibility of a deduction. French Government discloses that a special Naturally, the restaurateur will be able to system operates where the invoice to the break down his bill and show a service customer states 'service not included'. In
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that case, gratuities are at the customer's 57. For the remainder, the French Govern- discretion, and the customer may in fact ment is content to rely on the point that leave nothing by way of gratuity. To the when the practice made permanent by the extent that the customer does leave some- 1976 administrative instruction was intro- thing, the amount is received by the duced it was perfectly justified. It maintains employees from hand to hand. The gratu- that the practice provided security for staff ities may then be shared among the employed in certain sectors, who depended employees by means of a 'kitty' in which upon gratuities for at least the greater part they are pooled by a representative of the of their remuneration, and who would have staff, who then distributes them among the had it curtailed if the employer had redis- various persons entitled, or they may be tributed the service charges only after allocated on the basis that each employee deducting the turnover tax relating to them keeps the gratuities that he receives. In as a consequence of their being accounted every possible situation, the tax authority for in the overall receipts of the under- includes in the taxable amount — without taking. exception, according to the French Govern- ment — a 'reconstituted receipt' corre- sponding to the amount received by the employees.
58. Protection of staff was, and would now still be, essential in certain sectors and the Commission was seriously mistaken to claim, in its reply, that what was of real concern was the competitive position of establishments redistributing all the service charges received. 56. In my view that is fatal to the French position, which is based precisely on the fact that it is because a supplier does not retain service charges but repays them entirely to his staff that he is permitted in certain cases not to include them in the taxable amount by reference to which the amount of VAT due from him will be 59. I am willing to accept that the French calculated. Moreover, this system appears Government is better placed than the paradoxical, since one would have Commission for clarifying the objectives expected that the French Government of the French legislature before the Second would rather have based its case on the World War. But that is not the problem. In uncertainty of the sums received by 1923, the French authorities were free to employees in order, relying on the Tolsma provide for all the exemptions from the decision cited above, simply to exclude turnover tax that they thought desirable in them from the taxable amount. Fortu- the context of the French taxation system, nately, it is not my task to explain the just as they remain free today to adopt mystery of why this Annex was produced. protective measures for certain categories
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of workers who do not enjoy a fixed 63. There is a further matter on which the remuneration. analyses of the Commission and the French Government diverge. It concerns the possi- ble significance for the practice criticised by the Commission of changes in the French legislation on price information for consu- mers. 60. The question today is whether the end justifies the means, namely whether a State is free not to comply with the Sixth Directive where it considers that it has good reasons for not doing so. And to that question the reply can only be in the 64. The Commission believes that a circu- negative, since otherwise neither the pri- lar in 1988 about prices being displayed on macy nor the uniform application of Com- a 'service included' basis recognises that the munity law would continue to be ensured. service charge is an integral part of the price paid by the customer, while the French Government points out that the obligation to display prices 'service inclu- ded' is far from being as generally applic- able as the Commission maintains. But, 61. The French Republic is perfectly enti- there also, the dispute seems to me to have tled to put the practice with regard to no relevance. service charges on a permanent footing, and to guarantee certain workers a share in the turnover of their employers by requir- ing the complete payment over to staff of service charges collected, inasmuch as — and only inasmuch as — it does so without providing the establishments in question 65. What the Commission criticises is that with a VAT relief prohibited by the Sixth the administrative instruction of 1976 lays Directive. down a method for calculating the taxable amount which is incompatible with the rules of the Sixth Directive, and the French Government does not dispute that it is in practice applied by a certain number of suppliers of services.
62. The directive is in no way opposed to a protective social policy: it requires only that such a policy should not be pursued by certain means. That involves, indeed, a constraint, but it is inherent in the Com- munity system of VAT which, as the 66. Whether these suppliers are numerous Commission very rightly pointed out in its or not is of little importance in establishing letter of formal notice also underpins the whether or not there is an infringement. mechanism of the European Union's own Equally beside the point is the question resources. whether the French authorities succeed, by
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the strict enforcement of the four condi- 67. The fact is that the Community system tions laid down in the administrative of VAT, while it provides for a whole range instruction of 1976, in limiting the number of exemptions, has no de minimis rule of establishments which can pass through which would permit still more to be the breach which they themselves have created, which is what the French Republic made in the system of calculation and has claimed. The infringement seems to me, levying of VAT. as a result, to be clearly established.
Conclusion
68. In view of all the above considerations, I consider that the Court should declare that:
— by authorising, under certain conditions, the exclusion from the taxable amount for value added tax of the 'service charges' claimed by certain taxable persons, the French Republic has failed to fulfil its obligations under Articles 2(1) and HA(l)(a) of the Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment;
— the French Republic should pay the costs.
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