C-184/00

OFFICE DES PRODUITS WALLONS

OPINION OF ADVOCATE GENERAL GEELHOED delivered on 27 June 2001 1

I — Introduction transactions within the territory of the country as follows:

1. In this reference for a preliminary ruling, the Tribunal de Première Instance (Court of First Instance), Charleroi (Belgium), asks the Court to interpret Article 11A(1) 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 assess- ment (hereinafter: the 'Directive'). 2More 'The taxable amount shall be: (a) in respect specifically, the question seeks a determina- of supplies of goods and services other than tion as to whether a subsidy paid to a body those referred to in (b), (c) and (d) below, supplying goods and services is liable to everything which constitutes the considera- value added tax. tion 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 the price of such supplies.'

II — Legal framework

2. Article 11A(1) of the Directive sets out the basis of liability to value added tax on This article was incorporated into Belgian 1 — Original language: Dutch. law by the first paragraph of Article 26 of 2 — OJ 1977 L145, p. 1. the Belgian Value Added Tax Code.

5. On 7 December 1998 a final demand was issued for payment of the amounts of BEF 6 746 333 (VAT) and BEF 1 349 000 (fines), together with interest at a rate of 0.8% per month as from 21 January 1997. The parties disagree as to the scope of that In an action dated 14 January 1999, OPW third condition. challenged the final demand before the Tribunal de Première Instance, Charleroi. It sought a declaration that it was null and void as regards the sum exceeding BEF 33 833 and an order that the Belgian State repay all amounts unduly received, together 8. By a decision of 11 May 2000, received with interest as provided for by law. at the Court Registry on 16 May 2000, the

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OFFICE DES PRODUITS WALLONS

Tribunal de Premiere Instance, Charleroi IV — Applicable case-law (Second Civil Chamber) subsequently asked the Court for a preliminary ruling on the following questions:

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OPINION OF MR GEELHOED — CASE C-184/00

14. The Sixth Directive makes only limited parties. While it is relatively easy to decide provision for taxation of subsidies. Arti- straight away that subsidies are 'directly cle HA(1)(a) includes in the taxable linked to the price' when their amount is amount "subsidies directly linked to the determined either by reference to the selling price" of supplies. Thus, a subsidy will be price of the goods or services supplied, or in included in the taxable amount if it is paid relation to the quantities sold, or again in subject to the condition that the recipient relation to the cost of goods or services makes a supply of goods or services. For supplied to the public free of charge, it is example, a support measure whereby a extremely difficult to decide in the case of farmer receives a certain sum for each other types of subsidy such as deficit product sold forms part of the considera- subsidies or operating subsidies, which are tion for the supply. On the other hand, paid with the aim of improving a firm's subsidies that are more remote from parti- economic position and which are granted cular supplies and intended more generally without specific reference to any price. The to improve the undertaking's economic absence of any substantial difference position do not form part of the basis of between these two types of subsidy (those assessment. Examples of such subsidies 'directly linked to the price' are usually also include subsidies for the purchase of assets, aimed at improving a firm's position), for covering losses and for the restructuring together with the fact that a Member State of an undertaking. can convert a subsidy of the first type into a subsidy of the second type, illustrate the fragility of a distinction based on purely formal criteria (the manner in which the subsidy is granted) and thus the inadequacy of the Directive in this respect."

10. The Court has had occasion in two cases to examine the liability to VAT on certain subsidies paid by public authorities 12. In the case of a subsidy, the existence of to individuals. Both the Mohr judgment 4 a subjective value is swiftly established. and Landboden-Agrardienste 5turned on What is more interesting is to determine remuneration paid to farmers who, in whether that value also constitutes consid- exchange for that remuneration, undertook eration for a supply of goods or of services. to reduce their production. The Court That therefore raises the issue of the direct confirmed in those judgments that a sub- link. In accordance with settled case-law, sidy paid by public authorities in the 'provision of services is only taxable if there general interest may constitute considera- is a direct link between the service provided tion for a service within the meaning of the and the consideration received'. 9 An Directive. 'Thus, in order to determine instructive illustration of the interpretation whether a supply of services is caught by given by the Court of the concept of 'direct the Sixth Directive, it is necessary to link' may be found in the Tolstna judg- examine the transaction in the light of the ment. I quote: 'If a musician who performs objectives and nature of the common on the public highway receives donations system of VAT'. 6However, in that case, from passers-by, those receipts cannot be 'the farmer does not supply services to an regarded as the consideration for a service identifiable consumer or any benefit cap- supplied to them'. 10There is in reality no able of being regarded as a cost component contract between the parties, nor the of the activity of another person in the necessary link between the activity and commercial chain'. 7 the payment. The payment is in truth quite independent of the enjoyment of the musi- cal performance.

object was to advertise, promote and the purchase and sale price of currency. In improve the quality of apples and pears the first place, it is unnecessary to establish produced in England and Wales. That an identifiable link between the activity object is comparable with that of OPW. (the currency transactions) and the consid- The Council's revenue derived however eration charged therefor. The Court from charges paid by the growers. The accepted that the 'consideration, that is to Court considered that 'mandatory charges say the amount which the bank can actu- of the kind imposed on the growers in this ally apply to its own use, must be regarded case do not constitute consideration having as consisting of the overall result of its a direct link with benefits accruing to transactions over a given period of time.' 14 individual growers as a result of the Secondly: 'Nor is it necessary for either the exercise of the Development Council's taxable person supplying the goods or functions'. 1 2I emphasise that that case performing the service or the other party did not concern a subsidy. The Court had to the transaction to know the exact to determine whether the charges paid by amount of the consideration serving as the the growers were to be regarded as con- taxable amount in order for it to be sideration for the service provided to them. possible to tax a particular type of transac- tion'. 15

14. In his Opinion, Advocate General Slynn attached importance to the fact that V — Assessment the Council had been set up in the public interest and that the charge was intended to cover administrative costs and other costs linked to a series of activities.

persuaded by the argument put forward by will therefore be payable. Alternatively, if a the Commission in support of its point of Member State grants a subsidy 'directly view that certain subsidies are liable to linked to the price', it will increase the VAT, specifically because they influence amount of the subsidy in such a way that competition. It is a general characteristic the beneficiary will suffer no adverse con- of subsidies paid to traders that they sequence from the levying of VAT. I would influence competition. In order to prevent emphasise for the sake of completeness that them from having undesirable effects on the Commission has indicated that it envi- competition, Article 87 et seq. of the EC sages making a proposal on this point to Treaty provide for a (preventive) system of amend the Directive. supervision by the Commission. Why then, in addition, should certain types of subsidy be liable to VAT? A further factor is that the effect of the charge to VAT is to be limited. The knowledge that VAT must be deducted from the subsidy may prompt the provider of the subsidy to increase it by a 18. None the less, the Court is naturally certain percentage in order to compensate bound by the wording of the Directive, as it for the VAT. currently applies. An interpretation of Article 11A(1)(a) of the Directive must distinguish between two types of subsidy:

— firstly, subsidies directly related to an economic activity engaged in by the beneficiary and which thus result in a reduction in the price of goods or services, and

22. However, the dispute in the main proceedings concerns a subsidy whose objective is to promote a region. The task of the beneficiary is to achieve that objec- 19. OPW, the Belgian Government, the tive. The subsidy is not directly linked to French Government and the Commission the price but is aimed at operating costs, submitted observations to the Court. At the with only an indirect effect on the price. hearing on 22 March 2001, OPW, the Belgian Government and the Commission further elucidated their arguments. All the parties are agreed that an indirect link with the price is insufficient to render the subsidy liable to tax. 23. The Belgian Government distinguishes between three types of subsidy. The first type involves three parties: the authority granting the subsidy, the beneficiary and the beneficiary's customer. It is argued that, with this kind of subsidy, the requirement 20. OPW maintains that the subsidies of a direct link does not mean that the granted in the present case are not liable amount of the subsidy is necessarily related to VAT. For they are operating subsidies to the price of each subsidised transaction which cannot be linked to an individual, or to the volume of such transactions. The taxable transaction, on the one hand amount of the subsidy may be either fixed because there is no direct link between the or at a flat rate. That gives the beneficiary taxable transaction (the supply of goods the opportunity of limiting his costs and and services) and the subsidy and, on the thus of offering a lower price.

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26. At the hearing the Belgian Government further stated that the requirement of a direct and identifiable link between the subsidy and the price would result in nearly all operating subsidies being excluded from liability to VAT. 29. The Commission states that the subsidy must be paid in contemplation of the supply of specific goods or services. An operating subsidy which affects the price only indirectly is not liable to VAT. Accord- 27. The Belgian Government goes on to ing to the Commission, three conditions draw a parallel with the facts in Naturally apply: the subsidy must be paid to the Yours Cosmetics. 17 It considers it impor- person providing the goods or services, it tant in this respect that the subsidy paid to must be paid by a third party and it must constitute consideration for the supply of goods or services or a part thereof. 17 —Case 230/87 Naturally Yours Cosmetics [1988] ECR 6365. This judgment concerned the supply of a 'motivating product' with a view to the organisation of parties at which those products, amongst others, could be purchased. 18 — See footnote 13 above.

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31. The question raised by the referring court concerns the scope of the concept of 'subsidies directly linked to the price of the 33. In the case of a subsidy it is sufficient transactions'. More particularly, the ques- for there to be a less close link with the tion arises as to whether operating sub- price of goods or services than in the case of sidies, which are not paid out directly in a payment. In any event, it is not necessary, connection with the supply of goods or on the grant of the subsidy, for account to services but may result in their being sold at be taken of the price of the goods or a lower price, attract liability to VAT. services to be supplied. I infer as much from inter alia the judgment in First National Bank of Chicago. 21 The price of the transaction need not play any part in the context of the grant of the consideration, in this case the subsidy. The authority grant- ing the subsidy does not itself need to know the price. I therefore consider the argument of OPW to be incorrect on this point also. 32. I would first draw attention to a condition determining application of the 19 — See footnotes 3 and 4 above. system laid down in Article 11A(1)(a) 20 — See footnote 11 above. which may be inferred from the judgments 21 — See point 15 of this Opinion.

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34. In his Opinion in Landboden-Agrar- 36. In determining whether there is a direct dienste, 22 Advocate General Jacobs cites effect on price or quantity, the following several examples of subsidies which have factors, inter alia, may play a role: no direct link with the price of a transac- tion. Those concern subsidies granted for the purpose of acquisition of assets, secur- ity against loss and business restructuring. It is clear from those examples that there is no direct relationship with the price. The position in the case of operating subsidies is less clear. In fact, if the operation of an organisation is paid for in part by the — If the supply of goods or services to public authorities, it is possible to achieve consumers constitutes a principal activ- production at a lower cost. ity of the beneficiary, it may be more readily assumed that the subsidy has a direct effect on price or quantity.

— In the same way, a direct influence may 39. If my reading of the facts is correct, the be more readily assumed if there is an Court does not need to reply to the second arithmetical relationship between pro- and third questions. It is true that it is for gression of the amount of the subsidy, the referring court to determine the ques- the quantity produced and progression tions to be referred to the Court in of the actual price of the goods or accordance with the second paragraph of services concerned. Article 234 EC. However, the Court has consistently held — inter alia in the But- terfly Music judgment 23 — that the Court should dismiss the application of a court if it is apparent that the interpretation of Community law which is requested has no direct link with the real dispute or the subject-matter of the main proceedings. 37. In light of the circumstances of the case it must be determined whether an operating subsidy leads to a reduction in the price or to an increase in the quantity of the goods or services supplied by the beneficiary of the subsidy. That determination must pri- marily be based on business considerations relating to the undertaking. In case of doubt, an accountant's report can provide a solution.

Under Article 11A(1)(a) of the Sixth 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 subsidies covering a part of the operating costs of a taxable person are liable to tax in so far as those subsidies are directly linked to a specific economic activity pursued by the beneficiary and thus lead to a reduction in the price of goods or services supplied by the beneficiary to a consumer or to an increase in the quantity of goods or services supplied. In light of the circumstances of the case it must be determined whether an operating subsidy leads to a reduction in price or an increase in quantity. That determination must be based, primarily, on business considerations relating to the under- taking.

(2) Second and third questions:

It is not necessary to reply to these two questions since they are not connected with the subject-matter of the main proceedings.

If the Court does not share that view, its reply to the questions might be as follows: in the situation described by the referring court there is no subsidy, but rather a payment for a service provided to the public authorities. Such payment is liable to VAT. I - 9129