C-409/99

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the taxable person shall be entitled to Until the above rules come into force, deduct from the tax which he is liable to Member States may retain all the exclu- pay: sions provided for under their national laws when this Directive comes into force.'

(a) value added tax due or paid in respect of goods or services supplied or to be supplied to him by another taxable 4. Hitherto, no Community rules of the person; kind mentioned in Article 17(6) have been introduced, despite the fact that the period indicated in that paragraph has long since elapsed. In accordance with Article 1, the Directive was to enter into force in the Member States by no later than 1 January (b) value added tax due or paid in respect 1978. of imported goods;

(c) v a l u e a d d e d t a x due under In the case of Austria, the date of entry into Articles 5(7)(a) and 6(3).' force was 1 January 1995, the date on which Austria acceded to the European Union.

3. According to Article 17(6) of the Direc- tive:

National law

'1. An Advisory Committee on value added tax, hereinafter called "the Committee", is hereby set up. 7. In Austria, the Umsatzsteuergesetz (Law on Turnover Tax) 1994 4(hereinafter the 'UStG 1994') has been in force since 1 January 1995 — the date on which Austria acceded to the European Union. Paragraph 12 of this law specifies the 2. The Committee shall consist of represen- amounts which a trader may deduct from tatives of the Member States and of the VAT. More particularly, Paragraph Commission. 12(2)(2)(b) stipulates that supplies and other services are not deductible in so far as they are connected with the purchase, leasing or use of cars, dual-purpose vehicles or motorcycles. These exclusions from The chairman of the Committee shall be a deductibility are, in their turn, subject to representative of the Commission. certain exceptions which are of no rel- evance to the present case.

Secretarial services for the Committee shall be provided by the Commission. 8. Paragraph 12(2)(2) of the UStG 1994 was taken over unchanged from the Umsatzsteuergesetz 1972, as amended by the second Amendment Law 1977, which

3. The Committee shall adopt its own rules of procedure. 4 — Published in BGBl. 663/1994.

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The view of the Federal Ministry for 'A minibus is not a car or dual-purpose Financial Affairs is that a minibus is under- vehicle for tax purposes, even if it is stood to mean a four-sided vehicle with the classified as a car or dual-purpose vehicle capacity to carry more than six persons from the point of view of engine capacity (including the driver). For the purposes of and customs tariff purposes, where it is in assessing the number of persons capable of the form of a bus and in addition satisfies being carried, the relevant factor is not the the following conditions: actual number of seats but the maximum number of persons permitted to be carried. It is not material whether a vehicle classi- fied as a minibus on these criteria is used for carrying persons or goods or both. In each case, in order for the vehicle to be eligible for deduction of tax, it must be 1. It is lawfully licensed to carry at least shown to be used primarily for business or nine persons (including the driver), has commercial purposes.' luggage room inside the vehicle and as

5 — Decision Z 09 1202/4-IV/9/87, published in Amtsblatt der 6 — Law of 30 April 1996, BGBl. 201/1996. fmattzverwaltung (Official Gazette of the tax authorities), 7 — Published in BGBl. 273/1996. With retroactive effect from AÖF 1987/330. 15 February 1996.

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part of its standard equipment has 13. Since 1 January 1978, that is to say three fixed seats in the front row. before Austria acceded to the European Union, VAT has in principle not been deductible on the purchase, leasing or use of cars, dual-purpose vehicles and motor- bicycles. The Austrian legislation did not define those categories. Nor did it specify the characteristics which distinguish those vehicles from heavy-goods vehicles and minibuses, both of which were eligible for the deduction of VAT. 2. It is lawfully licensed to carry at least seven persons (including the driver). Behind the third row it has a load compartment at least 500 mm long at the back. This length must be reached, on average, between the floor of the load compartment and a height of 500 mm above the floor.'

? re-litigation procedure

19. In its objection, Metropol had con- tended that, under the second subpara- graph of Article 17(6) of the Directive, 17. This case arises out of two appeals Austria was entitled to maintain in force pending before the Verwaltungsgericht- only those exclusions from deductibility for shof, namely Metropol Treuhand Wirts- VAT purposes which were in force on chaftstreuhandgmbH (hereinafter 'Metro- accession to the European Union on pol') against Finanzlandesdirektion für 1 January 1995. As at 1 January 1995, Steiermark and Michael Stadler against minibuses were fully eligible for deduction Finanzlandesdirektion für Vorarlberg. In of VAT. Certain categories of minibus were its VAT returns for 1996 and 1997, rendered ineligible for deduction from VAT Metropol applied for deduction of VAT in under the regulation. That exclusion could respect of the commencement of use of a not, in Metropol's view, be based on the motor vehicle of the Pontiac TransSport second subparagraph, of Article 17(6) of type. In his VAT return for 1996 Mr the Directive, or on Article 17(7), inasmuch Stadler applied for deduction of VAT in as it was based on purely fiscal, rather than respect of the commencement of use of a cyclical economic reasons. Moreover, the motor vehicle of the Fiat Ulysee type. Both exclusion was for an unlimited period and cases concerned vehicles designed to carry the Committee had not been consulted, as at most seven persons, including the driver. required by Article 29 of the Directive.

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21. In the Stadler case, the Finanzland- esdirektion für Vorarlberg justified its 1. Is the second subparagraph of decision as follows. The terms 'car' and Article 17(6) of the Directive to be 'dual-purpose vehicle' used in Paragraph interpreted as precluding a Member 12(2)(2)(b) of the UStG 1994 had been State from excluding the right to defined anew in the regulation. The new deduct VAT in respect of certain definitions had been necessary in the light vehicles after the entry into force of

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the Directive, if before its entry into of the Directive were clarified. Those judg- force VAT was deductible in respect of ments are of importance in connection with those vehicles as a result of practice the reply to the first question referred for a followed by the administrative auth- preliminary ruling. orities?

IV — The first question 2. If the answer to Question 1 is yes, is the first sentence of Article 17(7) of the Directive to be interpreted as meaning that a Member State may, without prior consultation under Article 29 of 25. Before actually proceeding to answer the Directive, add to the exclusions the first question, I propose to deal with from the right to deduct VAT in the two preliminary issues. The reply which manner described in Question 1 and will follow will itself, to a considerable for an unlimited period in order to extent, be determined by the two judg- consolidate the budget? ments in Commission v France of 14 June 2001. 10 In those judgments the Court shed light on the nature of the second subpara- graph of Article 17(6). In answering the question raised, the Court should therefore consider the extent to which the Austrian regulation of 1996 changed the existing legal situation.

can be applied to Member States such as tria, as a Member State, has the right to Austria which acceded to the European retain the exclusions from entitlement to Union only after the Directive came into deduct VAT that existed at the time of its force. The view amongst Austrian aca- accession to the European Union, that is to demics is that, since it is a derogation, the say, on 1 January 1995. Like the Verwal- second subparagraph of Article 17(6) is to tungsgerichtshof and the Commission, I be interpreted narrowly so that only the consider the decisive factor to be that a new original Member States were allowed to Member State takes over not only the retain existing exclusions from entitlement obligations but also the rights stemming to deduct VAT. from the acquis communautaire. It is also important to note that the Council has not adopted any of the measures for which the first subparagraph of Article 17(6) of the Directive provides.

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supply it with guidance on interpreting the same as the legislation existing at the time Community concept of "existing legis- of accession. It could not have made such lation".' At the hearing, the Commission an assessment without at the same time contested the Austrian Government's inter- examining the content of the existing legis- pretation of the judgment in the Konle case. lation. That aspect of the Konle case is In the Commission's view, the Court is in identical to the situation in the present case. fact competent to assess the content of the Since the Court considered itself to be Austrian national legislation at accession. competent in this respect in the Konle case, I fail to see why it should not be competent in the case now before it. Clearly, in the present instance the issue whether legis- lation such as the Austrian regulation is permitted by the second subparagraph of 30. I share the view that the conclusion Article 17(6) of the Directive cannot be which the Austrian Government draws determined if the Court were not able to from the judgment cited is incorrect. examine the existing legal situation. According to Article 234 EC, in prelimi- nary- reference proceedings the Court inter- prets Community law and not national law. In the paragraph of the judgment in ques- tion the Court explains how it views its task. In that connection, the Court states that it is required to give an interpretation of the Community concept of 'existing legislation'. Naturally, in order to do so, it must also examine the content of the The two judgments of 14 June 2001 in existing legislation itself. Commission v France

33. In the judgment in case C-345/99, the Court construed the competence of 22. The same reasoning can be applied in Member States to make use of the deroga- the interpretation of Article 17(6) of ting provisions of the second subpagraph of the Sixth Directive. Thus, where the Article 17(6), in the following terms: legislation of a Member State, after the entry into force of the Sixth Directive, is amended so as to reduce the scope of existing exemptions and thereby brings itself into line with the objective of the Sixth Directive, that legislation must be '21. In order to assess whether the amend- considered to be covered by the dero- ment of the national legislation at gation provided for by the second issue is compatible with the provisions subparagraph of Article 17(6) of the of the Sixth Directive, reference Sixth Directive and is not in breach of should be made to the judgment in Article 17(2).' Case C-136/97 Norbury Develop- ments [1999] ECR 1-2491, which concerned another transitional provi- sion of the Sixth Directive, namely Article 28(3)(b) concerning VAT exemptions. In that judgment, the Court held that amendments made to the legislation of a Member State which did not increase the scope of 34. It is plain that the provisions of the VAT exemption but, rather, reduced regulation do not have the effect of reduc- it, did not breach the terms of that ing the scope of the exemption. It is article. Whilst that article precludes established that the minibuses in question the introduction of further exemptions are excluded from entitlement to deduct or an increase in the scope of exemp- VAT. However, it does not immediately tions existing before the entry into follow that the regulation is not permitted force of the Sixth Directive, it does not under the terms of the Directive. The prevent their reduction, since their case-law of the Court, and in particular a b o l i t i o n is the objective of the abovementioned judgments of 14 June 2001, show that the Directive does not preclude a national measure that has no effect on the existing legal situation. Thus, 14 — Opinion of 22 February 2001, points 47 and 50. The Lennartz judgment was delivered on 11 July 1991 (Case the second subparagraph of Article 17(6) C-97/90 [1991] ECR 1-3795). In its written observations only prohibits the 'introduction of further the Commission also refers to the judgments in Case 348/87 Stichting Uitvoering Financiële Acties [1989] ECR exemptions or an increase in the scope of 1737, paragraph 13, and in Case C-453/93 Bulthuis- Griffioen [1995] ECR 1-2341, paragraph 19. [existing] exemptions'.

15—Judgment of the Court in Case C-305/97 Royscot AND 16 — See, for example. Case C-212/99 Commission v Italy Others [1999] ECR I-6671. [2001] ECR I-4923.

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effect of Community law in the Member courts. However, the present case does not States. A good illustration of this case-law concern an obligation to be fulfilled by a in regard to the Directive is the recent Member State when implementing Com- judgment in Commission v France. 17 That munity law but merely establishment of an case concerned a VAT exemption for ser- existing practice. vice charges in the French hotel and catering industry. That exemption — which was not provided for by French tax legislation — was based on an adminis- trative circular issued by the French tax authorities. Application of this exemption 41. I now turn to my second consideration. resulted in a finding by the Court against the French Republic.

42. The Commission asserts that the regu- lation led to a narrower definition of the term minibus. This resulted in the vehicles at issue no longer being treated as mini- buses. Thus, the regulation brought about a change in the legal situation.

small capacity, such as the Pontiac Trans- correct. However, that function is not Sport and the Fiat Ulysee, have appeared material to the answer to the first question on the market. These vehicles are replacing posed by the national court. Nor is it cars rather than buses. It would therefore material that minibuses with a small capac- be inconsistent with the purpose of Para- ity such as the Pontiac TransSport and the graph 12(2)(2) of the UStG 1994 and with Fiat Ulysee seem to have first appeared on the case-law of the Verwaltungsgerichtshof the market after 1987. to treat those vehicles as buses. Thus, Article 10 of the 1996 regulation stipulates that those vehicles must be regarded as cars or dual-purpose vehicles. In that regulation mandatory criteria are laid down for the first time. The purpose of that provision is not to extend the category of vehicles excluded from entitlement to deductibility 47. In view of the requirement for a of VAT but to establish a clear dividing restrictive interpretation, a decisive factor line. in determining the Court's answer is the fact that until entry into force of the regulation, minibuses with a capacity of fewer than nine persons benefited from the right to deduct whereas after that date they did not.

at the time of its entry into force VAT was first having followed the consultation pro- deductible under an established national cedure. It recalls that in the Direct Cos- administrative practice. metics case — concerning Article 27(2) of the Directive, which also provides for notification by a Member State wishing to adopt a derogating measure — the Court ruled as follows: 'By virtue of the third paragraph of Article 189 of the Treaty, Member States are bound to observe all the provisions of the Sixth Directive in so far as V — The second question a derogation has not been established in accordance with Article 27. The tax auth- orities of a Member State may not therefore rely, as against a taxable person, on a 50. The second question referred for a provision derogating from the scheme of preliminary ruling can be divided into two the Directive.' 20 The Commission argues parts. It is first necessary to examine the that this strict view also applies to legal consequences of failure to follow the Article 29. Consultation leads to the coor- consultation procedure laid down in dinated application of Article 17(7). More- Article 29 of the Directive. Thereafter, the over, it provides a precautionary means of meaning of the expression 'cyclical econ- testing the extent to which the national omic reasons' has to be investigated. measure has been adopted for cyclical economic reasons.

The consultation procedure

53. In forming a view of this matter, I consider it important first to distinguish 51. The Austrian Government points out between the Article 29 procedure and the that the Article 29 procedure is purely procedure under Article 27 of the Directive, consultative and unlike, for example, to which the Direct Cosmetics judgment Article 27 of the Directive, does not call relates. The Article 27 procedure is directed for a decision by the Council. The aim is to to obtaining the authorisation of the Coun- ensure the consistent application of the cil before a derogating measure is taken, Directive. A citizen cannot invoke non- whereas no such procedure is provided for compliance with that provision. under Article 29. Contrary to the Commis- sion's assertion, the Direct Cosmetics case has no direct bearing on the Article 29 procedure.

54. For those reasons, I would recall the — 56. I find support for my point of view in extensive — case-law of the Court con­ the judgment of 30 April 1996 in CIA cerning the non-observance of procedural Security International. 22 That case con­ requirements. The case-law of the Court cerned the breach by a Member State of the distinguishes between essential and non­ obligation to notify under Council Direc­ essential procedural requirements. In the tive 83/189/EEC of 28 March 1983 laying case of essential procedural requirements down a procedure for the provision of non-observance results in the annulment of information in the field of technical stan­ the measure concerned. Moreover, the dards and regulations. 23 In its judgment Court interprets the term 'essential pro­ the Court compared this notification obli­ cedural requirement' broadly. 21 gation with 'an obligation to give prior notice which did not make entry into force of the envisaged rules subject to the Com­ mission's agreement or lack of opposition'. Unlike the latter, the notification obligation in question was not intended 'simply to inform the Commission ... [but] has a more 55. I am of the opinion that in this case the general aim of eliminating or restricting failure to follow the consultation procedure obstacles to trade, to inform other States of under Article 29 of the Directive may be technical regulations envisaged by a State, regarded as a breach of an essential pro­ to give the Commission and the other cedural requirement, which nullifies Member States time to react and to propose reliance on Article 17(7) of the Directive. amendments for lessening restrictions to I infer as much from the wording of the free movement of goods arising from Article 17(7) itself. An exclusion from the the envisaged measure and to afford the right to deduct is only allowed 'subject to Commission time to propose a harmonising the consultation provided for in Article 29'. directive'. Because of this more general aim In view of this wording, consultation of the the Court regarded the obligation to notify Committee is a precondition for a national as an essential formal requirement, in measure based on Article 17(7), even contrast to the general notification with though in this case the consultation is no which it was compared. more than an exchange of information. Indeed, it is logical that the obligation to consult be accorded such importance. In this instance, the consultation procedure also affords the Commission an opportun­ ity to monitor the use made of a possibility of derogation which — as I emphasised in my examination of the first question — must be interpreted narrowly.

The 'cyclical economic reasons' criterion

61. There is no need to examine in detail the question of the extent to which attain- ment of Economic and Monetary Union 58. According to the Austrian Govern- still leaves room for Member States to m e n t , M e m b e r S t a t e s may use conduct their own economic policy. How- Article 17(7) to correct macroeconomic ever, I am assuming that since attainment imbalances, to reduce the budget deficit of Economic and Monetary Union, policy and to repay State debt. The national within the Union must be coordinated. In measures need not be limited in time. They this connection, I refer to the procedure may include measures already in existence under Article 99 EC. Consequently, there when the Directive entered into force. The cannot be much scope for entirely unilat- Commission, on the other hand, argues eral reliance on Article 17(7) of the Direc- that Member States may not make indefi- tive. nite use of derogating measures for purely budgetary reasons.

62. This brings me back to the national court's second question itself. In principle, 59. A Member State may base an exclusion a measure covered by Article 17(7) of the from the system of deductions under Directive must be of limited duration. A Article 17(7) on cyclical economic reasons cyclical economic fluctuation is, by defini- only. There is no doubt in my mind that a tion, a temporary effect. As I see it, the time regulation applicable for an indefinite limitation per se does not need to be period and, moreover, intended to reduce explicitly expressed in the measure the budget deficit and repay State debt does itself — a measure introduced for an not have a cyclical economic origin. indefinite period may in due course be

Second question: Article 17(7) of the Directive does not allow an exclusion from the right to deduct VAT to be introduced for cyclical economic reasons without prior consultation of the committee provided for in Article 29 of the Directive. Moreover, the limitation in Article 17(7) to exclusions for cyclical economic reasons entails that, as a matter of principle, the exclusions must apply for a specific period of time and, in any case, may not be structural in nature.

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