C-384/01

COMMISSION v FRANCE

OPINION OF ADVOCATE GENERAL ALBER delivered on 10 October 2002 1

I — Introduction II — Legal framework

2. Article 12(3)(a) of the Sixth Directive 3 provides:

1. In 1998, the French Republic amended its domestic law relating to value added tax on supplies of electricity and natural gas. It applied a reduced rate of value added tax to the standing charge, that is the fixed price 'The standard rate of value added tax shall payable in respect of a defined period of be fixed by each Member State as a time for connection to the relevant dis- percentage of the taxable amount and shall tribution networks and other fixed costs. be the same for the supply of goods and for The standard rate remained applicable to the supply of services.... the rest of the consideration, which was calculated by reference to consumption. In the present infringement procedure, the Commission alleges in the first place that the French Republic did not inform it properly or completely of the amendment in advance, whereas the Sixth VAT Direc- tive required it to do so. 2 In the second place, it is of the view that applying Member States may also apply either one different rates of value added tax to the or two reduced rates. These rates shall be two parts of the supply is not compatible fixed as a percentage of the taxable amount with the Directive. which may not be less than 5% and shall apply only to supplies of the categories of goods and services specified in Annex H.' 1 — Original language: German. 2 — Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to •3 — As amended by Council Directive %/9.S/KC.' of 20 December turnover taxes — Common system of value added tax: 1996 ¡unending, with regard to the level of the standard rate uniform basis of assessment (OJ 1977 L 145, p. 1) (here- of value added tax. Directive 77/388/EEC on the common inafter the 'Sixth Directive'). system of value added tax (0J 1 9 % 1. .338, p. 89)

4 — As amended by Council Directive 92/77/EEC of 19 October 1992 supplementing the common system of value added tax and amending Directive 77/388/EEC (approximation of 8. By a further letter dated 7 December VAT rates) (OJ 1997 L 316, p. 1). 5 —Journal officiel de la République française of 31 July 1998, 1998 the Commission expressed doubts as p. 20050. to France's argument, on the ground that

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the standing charge did not actually pay for of the Member States relating to turn- any energy consumption, and required the over taxes — C o m m o n system of French authorities to explain this point in value added tax: uniform basis of more detail, which however they did not assessment; do.

— order the French Republic to pay the 9. The French Parliament enacted the rel- costs. evant law on 30 December 1998. It was promulgated on 31 December 1998 and entered into force on 2 January 1999. 6

12. The French Republic contends that the Court should:

that the French Republic has infringed the 18. If the standing charge were consider- Sixth Directive in two different ways. In the ation for a service other than the supply of first place, it is of the view that France did energy, Article 12(3)(b) of the Sixth Direc- not properly follow the notification pro- tive, which authorised a reduced rate of tax cedure under Article 12(3)(b) of the Sixth for the supply of energy, was not appli- Directive before introducing the reduced cable. Nor did the present case come within rate. In the second place, the Commission is any of the other categories to which of the view that the structure of the value Article 12(3)(a) of, in conjunction with added tax provisions is in substance incom- Annex H to, the Sixth Directive authorised patible with Article 12(3)(a) and (b) of the a reduced rate to be applied. Sixth Directive.

15. In the Commission's opinion, its sec- ond request for information, dated 7 December 1998, interrupted for a second time the period laid down by the fourth sentence of Article 12(3)(b) of the Sixth 19. On the other hand, if the standing Directive prior to its expiry. For that charge were to be regarded as part of the reason, France had not been entitled to consideration for the supply of energy, the assume that the Commission had tacitly measure infringed the principle in approved the measure, and accordingly had Article 12(3)(a) of the Sixth Directive that not been entitled to implement it. a single rate of tax was to be applied to similar supplies. This principle was ulti- mately an aspect of the principle of fiscal neutrality.

B — The French Government charge was consideration for the supply of natural gas and electricity and not for some other service. 21. The French Government submitted that its response to the Commission's first letter had given the Commission all the infor- mation it needed. No further information had been required to enable the Commis- sion to construct its two alternative argu- ments for the proposition that the directive had been infringed. The proposition that the information had been sufficient to 24. Nor had it infringed the principle of a enable the Commission to commence an single tax rate for similar supplies. The infringement procedure but not to enable it supply of energy by public networks com- to make a decision under Article 12(3)(b) prised various different supplies, and it was of the Sixth Directive was incomprehen- lawful to apply different rates of tax to sible. each of them. First, a connection was made available to the customer who was thereby enabled to obtain gas or electricity, as the case might be. Secondly, a particular amount of energy was supplied and was charged for by reference to consumption. 22. The French Government's failure to reply to the Commission's second (and in its view superfluous) request for infor- mation (dated 7 December 1998) did not infringe Article 12(3)(b) of the Sixth Direc- tive. This request had not interrupted the period within which the Commission was entitled to object to the implementation of the reduced rate of tax. 7 It followed that the period had expired on 7 December 25. The French Government submitted that 1998, three months after the receipt of the the complaint of discrimination between French Government's letter, and that the different categories of consumers was inad- measure was therefore to be regarded as missible, since it did not appear in the having been tacitly approved. reasoned opinion. Gaz de France (here- inafter 'GdF') and Électricité de France (hereinafter 'EdF') imposed a different standing charge according to consumption and voltage respectively and according to 23. Purely in the alternative, the French customer category (private customers, busi- Government rejected the complaint of a ness customers, small industrial customers substantive infringement of the directive. It and industrial customers) as well as within had always emphasised that the standing customer categories depending on what tariff the customer chose. Therefore, the example the Commission portrayed could 7 — On this point, the French Government referred to Case not prove there to have been discrimi- C-99/98 Austria v Commission |2001] ECR I-1101. nation.

27. Before applying any reduction, the Member State must inform the Commis- 30. This interpretation is also supported by sion. The Commission either gives an the fact that if the Commission fails to give express decision or allows a period of three its decision within three months of being months to pass without giving a decision. notified, the measure is then deemed to be In the latter case, a risk of distortion of compatible with competition law. This competition is deemed not to exist. fiction, or tacit approval by the Commis- sion, ensures that the Commission cannot keep the Member State in a state of uncertainty as to its decision for too long a period. It is reasonable to expect the Member State to wait three months to 28. Article 12(3)(b) of the Sixth Directive apply the reduced rate, and in normal does not contain any more procedural circumstances the assessment procedure rules. By contrast with the corresponding cannot last any longer than that. provision in relation to State aids, con- tained in the third sentence of Article 88(3) EC, the provision does not expressly pro- hibit applying the reduced rate prior to the Commission's decision or the expiry of the three month period. 31. This is also supported by the fact that amendment of the value added tax rate for energy supplies is a political decision of broad-ranging effect owing to the large 29. However, an interpretation of the number of taxpayers it affects and its provision based on the principle of effet significant effects on the national budget.

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35. The Sixth Directive does not contain 8 any detailed provisions as to what infor- — The Court lias consistently emphasised the importance of this principle in its case-law concerning Member States' mation the Member State must supply in its difficulties in implementing Commission decisions on State aids. See Case 94/87 Commission v Germany | J 989) BCR notification and how the running of the 175, paragraph 9, Case C-378/98 Commission v Belgium assessment period is affected where the 120011 ECR I-5107, paragraph .11. and Case C-499/99 Commission v Spain [20021 ECR 1-6031, paragraph 24. information is incomplete and the Com- 9 — O J 1999 L 8.1, p. 1.

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Article 88 EC) (hereinafter 'Regulation cerned a request for information the Com- No 659/1999') entered into force, it had mission implies that a notification is incom- already been recognised that the period plete. 12 If the notification is truly incom- established in Lorenz 10 for the commence- plete (and this is a matter for the Court to ment of formal proceedings was com- determine), 13 then the period has not menced only by a complete notification. 11 started to run and accordingly it is not This condition was enacted in the second broken by the request for information. sentence of Article 4(5) of Regulation Correspondingly, if the Commission does No 659/1999. not request further information within the three month period, the notification under Article 12(3)(b) of the Sixth Directive is to be regarded as complete.

38. In addition, the third sentence of Article 4(5) of Regulation No 659/1999 provides that the notification will be con- sidered as complete if, within two months from its receipt, the Commission does not request any further information. 41. Therefore, the question as to whether the notification was complete, or could be held to be complete, with the consequence that the period began to run must be examined.

43. Moreover, the notification referred to could be regarded as consideration for the Article 12(3)(a) of the Sixth Directive and supply of energy, since it was not in itself not to Article 12(3)(b), which was the related to any actual energy consumption. relevant provision. This error was clearly It also e x p r e s s e d its view t h a t apt to cause misunderstandings. The Com- Article 12(3)(a) of the Sixth Directive mission could have thought that the stand- would have to be taken into consideration. ing charge was to be regarded as consider- ation not for the supply of energy but for a supply falling within Article 12(3)(a) in conjunction with Annex H to the Sixth Directive. 47. It may be concluded from the judgment of the Court in Austria v Commission that a letter in which the Commission does not ask for specific explanations of an intention to grant aid cannot postpone the com- mencement of the period. 14 44. The fact that on 31 July 1998 the Commission requested further information likewise means that the notification cannot be regarded as being complete.

48. In examining the letter it must also be remembered that the notification is required to contain principally factual information on the intended national meas- ure and information on the conditions in 45. On 7 September 1998 the French the market for the supplies to which the Government supplemented the information reduced tax rate is to be applied. On the it had supplied. Thereafter, on 7 December other hand, the Member State is not 1998 the Commission sent another letter to obliged to suggest how the measure should the French Republic. The question is be classified in law, since it is for the whether this letter is to be regarded as a Commission to assess the legal effect of the request for further information. facts.

50. It is certainly doubtful that the French Government had in fact already provided the Commission with all the information it needed in order to be able to assess the measure. Thus, for example, there was no 53. In itself, the fact that the Commission information about the situation on the asserted in its letter that the letter inter- markets concerned. Nor was there any rupted the period cannot alter this assess- detailed information on the tariffs appli- ment. The rule that after three months the cable in France for the provision of gas and measure is deemed not to distort compe- electricity, for example as to what propor- tition would be completely undermined if tion of the aggregate price for the supply of the Commission were thus able to influence energy consisted in the standing charge and when the assessment period started. That what in the charge calculated by reference would defeat the purpose of this provision, to consumption. namely to ensure that the Member States are not in a state of uncertainty as to the assessment of the intended measure for too long.

51. The French Government's argument that the information had to be regarded as sufficient for the purposes of the Sixth Directive since it was sufficient to enable the Commission to commence an infringe- 54. It follows that the French Govern- ment procedure is doubtful. The two pro- ment's notification must be regarded as cedures serve different purposes. Moreover, being complete once it sent its letter of it may be that it is easier for the Commis- 7 September 1998 supplementing the infor- sion to discharge its burden of proof in the mation it had already supplied. Three infringement procedure where the Member months after that letter had been received State has not cooperated in establishing the by the Commission, it was deemed that no facts. risk of distortion of competition existed.

59. The question is whether a complaint of a failure to fulfil obligations in this form is sufficiently precise and does not infringe the French Republic's defence rights. 57. The second ground is that the principle Although the French Government did not of a single tax rate has been infringed. Even raise any objection on this basis, it would though the Commission derives this prin- be open to the Court to consider the ciple likewise from Article 12(3)(a) of the question of its own motion, given that it Sixth Directive, the second complaint is is one of admissibility.

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64. The fiction or the tacit approval (as the case may be) relates only to the risk of distortion of competition. It does not encompass the other requirements of Article 12(3)(b), or indeed of any of the other provisions of the Sixth Directive. 2. Admissibility of the substantive com- Thus, for example, even though the Com- plaints mission has not given its final decision three months after the notification, the supply to which a reduced rate of tax is to be applied cannot be deemed to be a supply of natural gas and electricity. There- fore, the Commission's principal com- plaint, namely that the French Government was wrong to classify the supply as the 62. Under Article 12(3)(b) of the Sixth supply of energy, and that therefore Directive no risk of distortion of compe- Article 12(3)(b) of the Sixth Directive could tition is deemed to exist, given that the not provide the basis for applying a reduced three-month period has expired without the rate of tax, is in any case admissible.

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68. It is first to be observed that in its application to the Court the Commission 66. Finally, account must be taken of the did not provide any further reasons for its fact that in its letters of 31 July and proposition that the connection was a 7 December 1998 the Commission specific supply, even though the French expressed its doubts as to classifying the Government had expressly rejected this standing charge in law as consideration for view in its letter of 7 September 1998. the supply of natural gas and electricity. In addition, in its letter of 7 December 1998 it expressed doubt as regards Article 12(3)(a) of the Sixth Directive. Even if the Commis- sion thus failed to express its view as to distortion of competition within the time- 69. Only in its reply did the Commission limit, raising the present complaints in the s t a t e t h a t the term ' s u p p l y ' in infringement procedure does not amount to Article 12(3)(b) of the Sixth Directive could inconsistency on its part. not include the connection. Instead, the facility which the connection created to obtain energy supplies was a separate 15 — See below, points 94 f. supply, preliminary to the supply of energy.

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70. If it were to be held that the Commis- 73. Relevant to the electricity sector is sion's complaint is wrong in substance, it Directive 96/92/EC of the European Parlia- would be unnecessary to decide whether ment and of the Council of 19 December this rather superficial reason, which was 1996 concerning common rules for the not given until the reply, was sufficient to internal market in electricity, 16 which was fulfil the Commission's disclosure obli- required to be transposed not later than gation in an infringement procedure. 19 February 1999. Article 19 of this direc- tive provides for a progressive opening of the market, although initially only large consumers are to be permitted to choose their supplier.

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75. Provisions for opening the gas supply amount of the standing charge. However, market are contained in Directive 98/30/EC in its letter of 7 September 1998 to the of the European Parliament and of the Commission, the French Government Council of 22 June 1998 concerning com- stated that the revenue from the standing mon rules for the internal market in natural charge was only about 27% of the total gas. 20 This Directive was required to be costs of the distribution undertaking, transposed into national law not later than whereas the fixed costs 23 were in fact over 10 August 2000, but France did not trans- half those costs. In other words, part of the pose it within that time-limit.21 Moreover, fixed costs was covered by the revenue in this sector too, initially only large from the charges calculated by reference to consumers are given the right to choose consumption. their supplier. 22

76. It appears therefore that, at the relevant time, private customers and also many 78. In the present case, dividing the con- business customers could obtain electricity sideration for the supply of natural gas and and gas only from EdF and GdF respect- electricity into a fixed and a variable part ively, who also provided the connection. constitutes the exercise of the distribution This suggests that the connection is not to undertakings' freedom to fix prices for an be classified as a separate supply. integrated supply. 24 It is not the case that the two charges are for two separate supplies.

83. It deduces this principle from 80. It follows that the proposition that the Article 12(3)(a) of the Sixth Directive, connection does not constitute the 'supply which provides that, '[t]he standard rate of natural gas and electricity' within the of value added tax shall be fixed by each meaning of Article 12(3)(b) of the Sixth Member State as a percentage of the Directive is not correct, and accordingly taxable amount and shall be the same for that the introduction of a reduced rate of the supply of goods and for the supply of value added tax pursuant to that provision services...'. The Commission submits that cannot be precluded on that ground. There- this inherent principle of value added tax is fore, the Commission's principal complaint intended to prohibit any discrimination is to be rejected. between persons who obtain the same goods or services.

81. However, this decision applies only as of the point in time relevant for the purposes of the present infringement pro- cedure, namely the expiry of the period set in motion by the reasoned opinion. It is 84. However, this principle is not apparent possible that the situation has since from the provision's wording. What the changed as the market has been progress- provision in fact states is simply that the ively opened. standard rate is to be the same for services and goods. It does not appear from this provision that the same rate of tax is to be applied to similar services and similar goods. 4. The subsidiary complaint: infringement of the principle of a single tax rate

82. In case the connection were to be 85. None the less, the principle the Com- regarded as 'the supply of natural gas and mission relies on is an aspect of the principle of fiscal neutrality, which is recognised as a fundamental principle of 25 — OJ 1990 L 185, p. 16. the Community system of value added tax.

88. The principle of fiscal neutrality would be infringed if the consequence of the French tax provisions were that similar supplies which were in competition with each other were treated differently for That principle in particular precludes treat- value added tax purposes. ing similar goods, which are thus in com- petition with each other, differently for VAT purposes... The principle of fiscal neutrality for that reason also includes the other two principles... of VAT uniformity 89. As explained above, for the vast major- and of elimination of distortion in compe- ity of final consumers, the connection and tition.' 26 the supply of natural gas or electricity, as the case may be, are not distinct supplies but an integrated supply consisting partly 26 — Case C-481/98 Commission v France [2001] ECR I-3369, in services and partly in goods. 27 The only paragraphs 21 and 22. See also Case C-216/97 Gregg [1999] ECR I-4947, paragraph 20, Case C-381/97 Belgo- codex [1998] ECR I-8153, paragraph 18, and Case C-283/95 Fischer [1998] ECR I-3309, paragraphs 21 and 27 — Article 5(2) of the Sixth Directive provides that for the purposes of the directive electricity and gas are goods.

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supply of natural gas and electricity or as to VI — Costs the extent to which the tax provisions thus created a risk of distortion of competition between the different market participants. 97. The decision as regards costs depends on Article 69 of the Rules of Procedure, paragraph 2 of which provides that the unsuccessful party is to be ordered to pay 96. The Commission has thus failed to the costs if they have been applied for. prove one of the necessary conditions of Since the French Republic made such an an infringement of the principle of fiscal application, and the action has been unsuc- neutrality. Therefore, this complaint too is cessful, the Commission is to be ordered to unfounded. pay the costs.

V I I — Conclusion

98. On the basis of the foregoing considerations, it is submitted that the Court- should:

(1) dismiss the action;