C-78/00
ECLI:EU:C:2001:318
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COMMISSION v ITALY
OPINION OF ADVOCATE GENERAL MISCHO delivered on 7 June 2001 '
1. Every finance manager may, at any given ment bonds and not carried forward for moment, and even if the situation of the deduction in the following years. entity concerned is fundamentally healthy, find himself confronted with delicate pro- blems when receipts of funds from day to day do not correspond to the outgoings he must face. It is the way in which the Italian Republic intended to deal with such a Giving refunds by way of Government discrepancy that requires it today to bonds valid from 1 January 1994 to this explain itself to the Court with respect to category of taxable persons who, before a failure to fulfil obligations with which it customs borders were opened, guaranteed is charged by the Commission of the immediate tax receipts therefore enabled European Communities. the tax authorities to ensure the stability of internal receipts in respect of the financial year 1993 likewise.'
2. As the Government of that Member 3. The measures adopted by the Italian State explains, 'in 1993 the Italian State Republic appear in two successive texts. In was obliged to deal with the direct loss of the first place, there is Decree-Law No 16 receipts as a result of the failure to collect of 23 January 1993 (GURI No 18 of VAT on imports at customs. 23 January 1993), which became Law No 75 of 24 March 1993 (GURI No 69 of 24 March 1993).
It therefore considered it appropriate to 4. Article 11(1) and (2) of the latter pro- provide, in respect of a limited category of vide: taxable persons (namely, those who during the preceding year had declared intra- Community imports in excess of 10% of their total imports), that their tax credits would be refunded by means of Govern- 'Taxable persons who, during 1992, imported goods and services from other 1 — Origin.il language: French. Member States the value of which exceeded
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10% of their total transactions for that 23 August 1995), Article 3a(1) of which year, and who declared a VAT credit of not provides: less than ITL 100 000 000, may not carry that credit forward and deduct it in sub- sequent years ....
'For the purposes of discharging credits of value added tax and interest thereon ·— as determined by the tax returns for 1992 submitted by the taxable persons referred to in Article 11(1) of Decree-Law No 16 of Articles 10(1) and (2) apply to the dis- 23 January 1993, which became, after charge of the credits referred to in Arti- amendment, Law No 75 of 24 March cle 11(1) ... [those provisions govern the 1993, applies — which have not been discharge of credits arising from the settle- refunded at the date of entry into force of ment of annual income tax returns and the present decree, the Minister for the VAT by issuing Government bonds to the Treasury may issue further Government taxable persons concerned]. In that case, bonds for free circulation, taking effect on the application [for a refund of VAT by the 1 January 1996 for a period of 10 years, issue of Government bonds] must be sub- and up to a maximum amount of ITL 400 mitted by 31 March 1993 at the latest; the billion ...' time-limit for performing verification pro- cedures is 30 June 1993; interest on credits is to be calculated to 31 December 1993; Government bonds are to be drawn with effect from 1 January 1994; the maximum 6. I would recall that the Community value of bonds may not exceed ITL 7 500 system of value added tax (hereinafter billion, that expense to be allocated to the 'VAT') is structured entirely around the appropriate entry in the budget of the principle that every taxable person is enti- Ministry for the Treasury for the 1993 tled to deduct, from the tax which he is financial year; the Minister for the Treas- liable to pay in respect of the transactions ury's decree concerning the characteristics, he has effected, the tax that he himself has the conditions and the procedure for the paid to his suppliers on acquiring the goods issue of the Government bonds is to be or services necessary for him to pursue his published in the Official Journal by activity, and that this distinguishes VAT in a 30 November 1993 at the latest.' fundamental way from systems of turnover tax under which the taxes paid at the different stages of the commercial chain become aggregated.
5. Those particular refund arrangements were extended by Decree-Law No 250 of 7. This principle is expressed in Articles 17 28 June 1995 (GURI No 150 of 29 June and 18 of the Sixth Council Directive 1995), which became Law No 349 of 77/388/EEC of 17 May 1977 on the har- 8 August 1995 (GURI No 196 of monisation of the laws of the Member
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States relating to turnover taxes — Com- (c) value added tax due under Arti- mon system of value added tax: uniform cles 5(7)(a) and 6(3).' basis of assessment 2(hereinafter 'the Sixth Directive').
9. As regards Article 18(4) of the Sixth Directive, it provides: 8. Article 17(1) and (2) of the Sixth Direc- tive read as follows:
'Where for a given tax period the amount of authorised deductions exceeds the amount of tax due, the Member States '1. The right to deduct shall arise at the may either make a refund or carry the time when the deductible tax becomes excess forward to the following period chargeable. according to conditions which they shall determine.
2. In so far as the goods and services are used for the purposes of his taxable trans- However, Member States may refuse to actions, the taxable person shall be entitled refund or carry forward if the amount of to deduct from the tax which he is liable to the excess is insignificant.' pay:
10. As it considered that the abovemen- tioned provisions of Italian legislation con- (a) value added tax due or paid in respect stituted an infringement of those articles of of goods or services supplied or to be the Sixth Directive, the Commission supplied to him by another taxable brought infringement proceedings against person; the Italian Republic by application regis- tered at the Registry of the Court on 2 March 2000 under number C-78/00, now submitted for our examination.
(b) value added tax due or paid in respect of imported goods;
11. In its application, it claims that the 2 — OJ 1977 I. 145, p. 1. Court should declare that, by providing
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that the category of taxable persons whose perhaps above all, that in fact the bonds tax position for 1992 is in credit be were in a number of cases issued after belatedly issued with Government bonds significant delays. instead of receiving VAT refunds, the Italian Republic has failed to fulfil its obligations under Articles 17 and 18 of the Sixth Directive and that it should order the Italian Republic to pay the costs of the proceedings. For its part, the Italian Repub- 15. On the other hand, it did not dispute in lic contends that the application should be clear terms the making of refunds by dismissed. issuing bonds. It was only later that the Commission explicitly claimed that the issue of Government bonds could not be regarded as a refund within the meaning of Article 18(4) of the Sixth Directive, con- tinuing to rely on the late issue of those 12. Let us consider, first, what, precisely, is bonds only as a circumstance aggravating the infringement of the Sixth Directive with the infringement. which the Commission charges the Italian Republic, for it appears, from a reading of the correspondence exchanged between the two parties during the pre-litigation phase, that there may have been some ambiguity on this point. 16. However, that clarification was made sufficiently early to preclude objection to the action on the ground of discrepancy between the letter of formal notice, the reasoned opinion and the application. 13. Initially, the Commission claimed that, given the conditions under which it was effected, the issue of bonds to taxable persons entitled to claim a VAT credit for 1992 constituted a breach of the rule that it is to the period following the one in respect 17. Admittedly, the Italian Government of which the amount of authorised deduc- does not fail to rely in its argument, on tions exceeds the tax required to be paid to the merits, on what might appear to be the revenue that the excess must be carried changes in the Commission's position, but forward. it does not contest the admissibility of the action, and the arguments it advances in its defence relate rather to the question whe- ther, having chosen to exercise the power granted to it by Article 18(4) of the Sixth Directive to opt for a refund of VAT credits 14. In that respect, it claimed not only that, rather than allowing them to be carried according to the provisions of the Italian forward to the following financial year, it legislation, the bonds were to be issued was entitled to effect that refund by issuing only in 1994 and not in 1993, but also, and Government bonds.
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18. What are the arguments in the present the financial intermediary who will act in case? the transaction.
19. According to the Commission, which relies on the judgment in Molenheide and 23. In fact, according to the Commission, Others, 3where a Member State opts to the transaction effected by the Italian refund a VAT credit, the refund must be Republic has all the characteristics of a immediate and must consist in putting mandatory loan. liquid funds at the disposal of the taxable person.
24. Of course, the Italian Government 20. Admittedly, the Member States may takes an entirely different view. First of determine the conditions according to all, it states that it did not effect any which a refund is effected, but only to the reduction in the VAT credits which taxable extent that the requirements of immediacy persons could claim. Their credit was and of liquidity are not put at risk. recognised in its entirety. It submits, next, that, having opted for a refund rather than a carry forward, it simply used the power granted to it by Article 18(4) of the Sixth Directive to determine the mode of the refund. 21. However, one cannot consider these as having been guaranteed to a taxable person who is issued with a Government bond maturing at five or ten years.
25. In that regard, it argues that choice of mode must be understood as meaning something other than the choice between 22. If he wishes to have the amount owed a bank cheque, a bank or postal transfer or to him by the Italian State available for the payment in cash. purposes of his business, such a taxable person will have to find a purchaser for the bond issued to him, without being sure that that purchaser will buy the bond at nom- inal value, but, certainly, in addition, having to pay the commission claimed by 26. According to it, many other modes of refund can be envisaged, provided that they 3 —Joined Cases C-286/94, C-340/95, C-401/95 and C-47/96 do not result in any loss to the taxable [1997] ECR I-7281, paragraph 45. person entitled to a VAT credit.
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27. However, in that regard, no criticism the Sixth Directive to discharge a VAT may be made in respect of the mode of credit by issuing Government bonds by way refund adopted by the Italian Republic in of refund, provided that the issue of the the exercise of its sovereign power. bonds was not subject to any delay that caused economic loss to the taxable person.
28. Although the bonds were issued only with effect from 1 January 1994, the tax- 31. It accepts that, in the present case, able persons have benefited up to that date certain delays occurred, but states that they from the interest provided for by the Italian related to certain substantive difficulties legislation relating to the refund of tax. The and errors at the administrative level and bonds themselves carried interest at a this cannot in principle call in question the higher rate, being above inflation by a transaction it effected. significant amount and reaching, for exam- ple, 7.8% in 1998.
32. What weight is to be given to these arguments? 29. Until 1999, that rate of interest proved to be always above the rate provided for tax refunds. In any case, the bonds could be negotiated without any difficulty, as they were admitted to the official list, and, taking account of the rate of interest they attracted, could in principle be negotiated 33. Let me say at once that a question of even above their nominal value, so that if principle can receive only an answer of the taxable person so wished he could at principle and that, in consequence, I do not any time obtain in exchange for his bonds see any interest in discussing the gains or liquid funds in an amount at least equal to losses actually made by Italian taxable the value of his former VAT credit. persons to whom Government bonds were issued in refund of their VAT credits.
30. Finally, the Italian Government states that the Commission, in focusing its criti- 34. The only question that needs to be cisms on the delay with which the bonds answered by the Court is whether that issue were issued, in fact accepted that it is is in itself permissible having regard to the perfectly permissible under Article 18(4) of rules laid down by the Sixth Directive.
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35. My reply to that simple question is very 38. The 'right to deduction' must therefore clearly no. If one refers to the text of be exercised 'immediately', but can one Article 18(4) of the Sixth Directive, one draw from this any conclusions as to the finds that where, at the end of a tax period, time at which the 'refund' of an excess of the taxable person finds he has a tax credit, VAT must be given by the Member State? the right to deduct must lead either to a carry forward of the excess to the following period or to a refund, at the option of the Member State concerned.
39. In paragraph 45 of its judgment in Molenheide, cited above, the Court refer- red to 'the national authorities' obligation 36. It is out of the question that the to make an immediate refund under Arti- Community legislature could have intended cle 18(4) of the Sixth Directive'. to create two possibilities producing very different results for taxable persons. This would plainly be the case if, where a Member State opts for a refund, the taxable person had to wait years to have the amount due to him at his disposal in the form of liquid funds, whereas the taxable person authorised to carry forward to the 40. In that regard, however, it is to be following period would see his credit being remembered that according to Article 18(4) discharged by set-off very rapidly. of the Sixth Directive the problem of carrying forward or refunding the excess arises only where 'for a given tax period the amount of authorised deductions exceeds the amount of tax due'. 5
37. There remains to be determined the latest time at which the refund must take place. In this regard, the Commission refers to the judgment in BP Stipergas, 4in which the Court stated that 'the right of deduction provided for in Article 17 et seq. of the 41. Although a right to deduction arises Sixth Directive is an integral part of the therefore 'immediately' and many times in VAT scheme and in principle may not be the course of a given period, the right to limited. The Court has consistently held... carry forward or to a refund of the excess that the right of deduction must be exer- may be exercised only at the end of the cised immediately in respect of all the taxes period in question. The two must not be charged on transactions relating to inputs'. confused.
4 — Case C-62/93 [1995] UCR I-1883, paragraph 18. 5 — 1-mphasis added.
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42. The fact remains that, from the end of a admitted to the official list also confers on given 'tax period', the Member States must them a certain form of liquidity in practice. either allow the excess to be carried for- However, that liquidity is far from being ward to the following period or grant a always perfect. The stock exchange is a refund. As the set-off of the credit carried market where the only person who can sell forward against new VAT debts will take is a person who finds a buyer, and admis- place gradually in the course of the new sion to the official list does not itself period, one might imagine that the refund constitute a guarantee that, whatever the too could be effected in several stages in the number of bonds he wishes to dispose of, course of the same period. However, it every seller will always find a buyer willing must be completed by the end of that to acquire them. Even less is it a guarantee period. that that potential buyer will be prepared to pay a price equal to the nominal value of the bond.
43. Consequently, it cannot be accepted that tax credits relating to the financial year 1992 may be 'refunded' by the issue, from 1 January 1994, of Government bonds that mature at the end of five to ten years. 46. Every person who is in the least aware of the functioning of the stock market knows that the price of debt, that is to say, of bonds, varies as a function of changes in interest rates. A bond at 3% will not find any buyer at its nominal value if the interest rate on new issues is 5%. The purchaser of 44. The only certainty attaching to such a an old bond at 3% will only be disposed to bond (if, of course, one excludes the pay a price that assures him a return of 5% possibility that the State may become in real terms, that is to say, a price far bankrupt, which, however, history has below the nominal value. Conversely, a taught us is not entirely theoretical) is that bond carrying interest at the rate of 10% of a refund at the fixed date of maturity, will sell above its nominal value if new preceded by the periodic payment of inter- issues offer an interest rate of only 5%. est at a fixed rate. That certainty is the antithesis of the liquidity of a monetary payment in the legal tender of the State in which the payment is made, occurring at the latest at the end of the following tax period.
47. Once the holder of a bond decides to dispose of it before its maturity, he is confronted with a risk which may be favourable to him one day, but which 45. Admittedly, as the Italian Government may of course also be unfavourable to assures us, the fact that such bonds are him the next.
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48. When Article 18(4) of the Sixth Direc- way in order to pay their suppliers or their tive refers to a refund, it certainly does not employees, even though, having regard to intend that this should include among the the Sixth Directive, they could legitimately modes of refund one which confronts the rely on their VAT credit to ensure that their creditor with a risk, whatever it might be. finances balanced.
49. I would add that negotiating a bond on a stock exchange necessarily gives rise to costs, as it presupposes the involvement of 52. I would also observe that the emphasis an intermediary, who must be remunerated. placed by the Italian Government on the Therefore, it is only if the purchaser pays a 'good deal' obtained, according to it, by the price higher than the nominal value that the taxable persons to whom bonds created seller of a bond can hope to realise a net from 1994 were issued, consequent on the sum equal to the nominal value. changes in interest rates in Italy, reveals that the Italian Government is trying, as far as possible, to avoid any discussion on the level of principle, a level on which its position is untenable.
50. In response to the Italian Government's assertion that the issue of Government bonds to a taxable person poses no pro- blems as regards liquidity, interested parties concerned could raise an insidious, but perfectly relevant, question, namely whe- 53. What also appears to me to be reveal- ther it would be possible for them to ing is the fact that the Italian Government, present, by way of payment to discharge in a note of 19 February 1999 from the the various taxes for which they are liable office of the Minister for the Treasury, the by virtue of their activity, bonds that have Budget and the Economic Programme, been issued to them, rather than paying by produced to the Court, states, in order to cheque or bank transfer. explain that the transaction effected in application of the Decree-Laws of 1993 and of 1995 cited above could not in any way be regarded as a carry forward beyond the period following the financial year of the right to deduction and, on the contrary, 51. In my opinion, there is hardly any discharged in its entirety the debt of the doubt as to the answer that they would Italian Treasury in respect of VAT to the obtain from the Italian treasury. A fortiori, taxable persons concerned, that what is since the Italian authorities have not yet concerned is a 'mode of refund which followed the path marked by the French consisted in substituting for the debt cre- revolutionaries who decreed a mandatory ated by the tax credit of the taxable person exchange rate for the assignat, one can another debt represented by the Govern- hardly imagine that they could act in that ment bond'.
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54. For my part, I cannot accept that the 58. According to the Commission, such a Community system of VAT can accommo- substitution, if between two private per- date what is akin to a conjuring trick, since sons, would have to be regarded as a the Italian Republic would have refunded novation. its creditors by contracting a long-term debt towards them.
59. For my part, I consider that the trans- action effected by the Italian Republic would lend itself rather to being regarded as a surrender in lieu of payment. 55. This type of transaction perhaps falls within the 'sovereign power' of the Italian legislature, to take up an expression used by the Italian Government in one of its notes to the Commission, but only as 60. However, be that as it may, as a matter regards taxes completely beyond the reach of private law, such a transaction obviously of Community law. requires the agreement of the creditor.
61. Even supposing that that is not the case in Italian public law, that law cannot 56. In conclusion of this analysis of the prevail over Community law, which, as I legality under the Sixth Directive of the think I have shown, prohibits such a transactions effected by the Italian Repub- method of refunding VAT credits. lic, I cannot but agree with the Commission that what is in fact involved is a mandatory loan.
62. Having rejected from the outset all discussion on the practical effect, for tax- able persons, of the Decree-Laws of 1993 and of 1995, cited above, since in my opinion the existence of the failure to fulfil obligations is wholly unrelated to that 57. What is issued to the holder of a credit effect, I shall not dwell on the considera- entitling him to an immediate payment in tions put forward by the Commission as money is another credit entitlement, in regards the particular gravity of the failure, place of that payment, which the Italian to do with the fact that the bonds were legislature has decided discharges the debt issued only belatedly. As the action for of the Italian Treasury in respect of VAT. failure to fulfil obligations is an objective
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action, and as the Court does not in any Court's judgment, it is for the Member way have to impose any sanction, in respect State to consider what measure it will of which the gravity of the infringement adopt to bring that failure to an end. If it could be important, it appears to me that, considers this to be impossible, it must even though the circumstance referred to by inform the Commission. It will then be for the Commission is in fact such as to make 1 the Commission to consider whether there the failure of the Italian Republic to fulfil is reason to bring a new action under its obligations even more obvious, the Article 171(2) of the EC Treaty and, if such Court need not mention it in the operative an action is brought, it will be the Court part of its judgment. that decides whether the Member State has infringed its obligations in not satisfactorily complying with the judgment and whether there is reason to impose the payment of a lump sum or to order a penalty payment.
63. The gravity of the infringement would, admittedly, be a factor to be taken into account if the Court were led to exercise the powers granted to it by Article 171(2) of the EC Treaty (now Article 228(2) EC), 66. However, as with the gravity of the but that is not the case in the present infringement, these are considerations that proceedings. do not have any place in the present proceedings.
64. There remains one final point for me to examine. This consists of the considera- tions put forward by the Italian Republic as 67. Before concluding, I would like to regards the difficulties with which it would observe also that, although it was not be confronted if the Court were to allow raised in any of the documents in the the Commission's application. written procedure, the transaction effected by the Italian Republic constitutes a breach not only of the Sixth Directive.
65. I shall be extremely brief on this point, inasmuch as it is clear that such considera- tions can, according to settled case-law, in 68. Since the issue of Government bonds in no way be taken into account in an action place of the refund provided for by the based on Article 169 of the EC Treaty (now Sixth Directive applied to only some tax- Article 226 EC). Either there is a failure to able persons entitled to a VAT credit in fulfil obligations, and the Court can merely respect of import transactions effected from find accordingly, or there is none, and the other Member States, it appears to me to be action must be dismissed. Once the failure obvious, having regard to the case-law of to fulfil obligations is declared by the the Court, that there is an infringement of
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Article 95 of the EC Treaty (now, after directly by the discrimination applied, as amendment, Article 90 EC). VAT is an regards the modes of refunding overpaid internal taxation falling within the scope tax, between importers and other opera- of that provision, which is infringed tors.
Conclusion
69. In conclusion, I propose that the Court should:
— declare that, by providing that in the case of a category of taxable person whose tax position for 1992 is in credit, such persons be issued with Government bonds instead of receiving VAT refunds, the Italian Republic has failed to fulfil its obligations under Articles 17 and 18 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;
— order the Italian Republic to pay the costs of the proceedings.
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