C-78/02

KARAGEORGOU AND OTHERS

OPINION OF ADVOCATE GENERAL GEELHOED delivered on 15 May 2003 1

I — Introduction ings, the remuneration actually paid there- fore consisting of earnings minus the VAT they include (internal deduction method).

1. In the first question submitted for a preliminary ruling in the three identical cases here at issue the Diikitiko Efetio Athinon (Administrative Court of Appeal, Athens) asks whether the amount which translators, on the recommendation of the Elliniko Dimosio (Greek State), include in their invoices in connection with trans- lation services provided for the State should 2. The Diikitiko Efetio Athinon also asks be regarded as VAT within the meaning of whether there can be a departure from the the Sixth Council Directive 77/388/EEC of formal principle governing the tax as set 17 May 1977 on the harmonisation of the out in Article 21(1)(c) of the Sixth Directive laws of the Member States relating to where the State, in performing a translation turnover taxes — Common system of activity in pursuance of its public authority, value added tax: uniform basis of assess- does not act as a taxable person within the ment 2 (hereinafter 'the Sixth Directive'), meaning of Article 4(5) of the Sixth Direc- given that, on the one hand, they provide tive with respect to the application of the their services not as self-employed persons deduction mechanism, and the said tax but as employees and, on the other hand, cannot be and is not passed on to the the amount concerned is not calculated on private individuals who contract with the their total earnings, but is considered to State for the translation of documents and, have already been included in those earn- on the other hand, the provider of the service claims the reimbursement of the tax paid to the tax authority after deduction of 1 — Original language: Dutch. any input tax in order to avoid the State's 2 — OJ 1977 L 145, p. 1. enrichment as a result thereof.

' 1 . "Taxable person" shall mean any per- son who independently carries out in any place any economic activity specified in paragraph 2, whatever the purpose or 5. States, regional and local government results of that activity. authorities and other bodies governed by public law shall not be considered taxable persons in respect of the activities or trans- actions in which they engage as public authorities, even where they collect dues, fees, contributions or payments in connec- tion with these activities or transactions. 2. The economic activities referred to in paragraph 1 shall comprise all activities of producers, traders and persons supplying services including mining and agricultural activities and activities of the professions. The exploitation of tangible or intangible However, when they engage in such activ- property for the purpose of obtaining ities or transactions, they shall be con-

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sidered taxable persons in respect of these 6. Article 18(1)(a) of the Sixth Directive activities or transactions where treatment states: as non-taxable persons would lead to significant distortions of competition.

' 1 . To exercise his right to deduct, the taxable person must:

In any case, these bodies shall be con- sidered taxable persons in relation to the activities listed in Annex D, provided they are not carried out on such a small scale as (a) in r e s p e c t of d e d u c t i o n s u n d e r to be negligible. Article 17(2)(a), hold an invoice, d r a w n u p in a c c o r d a n c e w i t h Article 22(3);'

B — National law entitled to deduct from the tax payable on the supply by them of goods or services the tax levied on goods and services supplied to them....'

8. P u r s u a n t to Article 2(1) of L a w 1642/1986 on the application of value added tax (A. 125), prior to its replacement by Article 1(1)(a) of Law 2 0 9 3 / 1 9 9 2 (A.181), value added tax is payable on, inter alia, 'the supply of goods and services, provided such supply is for taxation pur- poses within the territory by taxable per- sons operating in that capacity.'

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III — Facts of the main proceedings and 16. In support of these requests for reim- questions referred for a preliminary ruling bursement the translators all contended that the statements concerned were based on an error in law, in that the remuneration which they had received as translators was not subject to VAT. In particular, they pointed out that throughout 1992 and/or 1993 they had been in an employer-em- ployee relationship with the Ministry of 13. Apart from a few minor differences Foreign Affairs with regard to their con- that have no bearing on the material ditions of employment and remuneration assessment, the three joined cases are since, on the one hand, they had not identical as regards facts and proceedings. determined their remuneration themselves I will therefore confine myself to a gener- and, on the other hand, the Ministry of alised description of the facts and of the Foreign Affairs was liable towards third procedure adopted. parties for any acts or omissions on their part as translators. Further, they contended that the VAT which, according to their statements for 1992 and/or 1993, was paid on their gross earnings was not passed on by them, given that the natural and legal persons using the services of the Trans- lation Department of the Ministry of Foreign Affairs do not include VAT in the 14. Mrs Karageorgou (Case C-78/02), Mrs total amount which they pay to the Minis- Petrova (Case C-79/02) and Mr Vlachos try of Foreign Affairs for the translation of (Case C-80/02) (hereinafter 'the trans- their official documents and so do not pay lators') are employed as translators from VAT. Greek into English or from Greek into German by the Translation Department of the Ministry of Foreign Affairs.

18. In consecutive judgments the President 20. The President of the Diikitiko Efetio of the D i i k i t i k o P r o t o d i k i o A t h i n o n Athinon dismissed these appeals by the (Athens Administrative Court of First Greek State as unfounded and upheld the Instance) allowed the translators' appli- judgments at first instance and the reason- cations and declared the requests for the ing on which they were based. However, it retraction of the VAT statements which failed to examine the ground of appeal they had submitted for 1992 and/or 1993 cited by the Greek State in the three cases to be well founded, set aside the negative regarding the fact that the translators were decisions of 9 February 1995 of the Head liable to pay the contested tax because they of the DOY at Cholargos and ordered that had mentioned it on the invoices which the amount of tax unduly paid by the they had issued in connection with the translators be repaid to them. These judg- services provided in the period in question. ments were partly based on the finding that the translators work as organs of the State, which has sole liability for their acts and omissions, given that the translations pro- vided by them are public documents. The President of that court also ruled that the translators undertake their activities under an employer-employee relationship with the State as regards the manner in which they perform their work and their remun- eration. The income from this activity 2 1 . The Greek State then appealed against cannot therefore be subject to VAT. these judgments to the Simvoulio tis Epik- ratias (Council of State) (Greece) and sought to have them set aside, citing the aforementioned omission.

the appellate court had wrongly omitted to total earnings received from the State, consider it. The cases were therefore which in law constitute the tax basis of referred back to the Diikitiko Efetio Athi- assessment to VAT, subsequently col- non for the purpose of partial reappraisal. lected from his earnings, but where the amount thereof is determined on the earnings by means of an internal deduction method and the earnings are regarded as containing the amount of VAT owed, while the State reduces the amount of legitimate earnings paid 23. The Diikitiko Efetio Athinon notes that to that person by the element of VAT there is a difference of opinion within the they are calculated to contain? Greek Council of State over the interpre- t a t i o n of A r t i c l e 2 8 ( 1 ) ( d ) of L a w 1642/1986, another chamber of the Greek Council of State having delivered in a case similar to the three here under consider- ation a judgment which differed from that delivered by the chamber of the Greek Council of State which has considered the present cases. As the interpretation of this article of the law is linked to the relevance of some provisions of the Sixth Directive, the Diikitiko Efetio Athinon believes it necessary for a final judgment on the undecided issue in the present three cases not to be delivered for the time being and for the following questions to be referred to (b) Can there be a departure from the the Court of Justice of the European formal principle governing the tax as Communities for a preliminary ruling: set out in Article 21(1)(c) of the Sixth VAT Directive (77/388/EEC) (that is to say, where VAT is mentioned on the invoice or other document serving as an invoice, such tax is payable to the State), where the State, in performing that activity in pursuance of its public (a) Is it possible to characterise as VAT, authority, is under Article 4(5) of the within the meaning of the provisions of above directive not subject to tax, so as the Sixth VAT Directive (77/388/EEC), to render the mechanism of deductions the amount mentioned on an invoice by inapplicable thereto, and the said tax a person who provides services to the cannot be and is not passed on to the State as a salaried employee, when the end consumer (namely, the individual person providing these services mis- who contracts with the State for the takenly considers that he is providing translation of documents), the provider services to the State as a self-employed of services being entitled to reimburse- person whilst, in reality, he is an ment of the tax paid to the tax employee and, on the recommendation authority after deduction of any input of his employer, charges VAT on the tax in order to avoid the State's enrich- invoices issued by him and not on his ment as a result thereof?

25. The first question submitted by the national court seeks to establish whether the amount mentioned in error on the 28. Article 4 of the Sixth Directive then invoice as VAT must be regarded as VAT defines the persons who are to be regarded in a situation where the service provider as 'taxable persons' within the meaning of concerned wrongly believes that he has that directive. The basic requirement set provided services for the Greek State as a out in Article 4(1) is that they must be self-employed person, whereas those ser- persons who independently carry out an vices are in fact provided in a relationship economic activity. Article 4(4) then states of employer and employee. The said that the term 'independently' excludes not amount is calculated by the internal deduc- only employed persons from the tax but tion system. This means that it is assumed also persons who are bound 'by any other that the legitimately determined earnings legal ties creating the relationship of already include the VAT owed, the amount employer and employee as regards working actually paid out therefore being the legit- conditions, r e m u n e r a t i o n and the imately determined earnings minus the employer's liability.' amount of VAT.

26. To determine whether the amount 29. The Greek Government has pointed concerned should be regarded as VAT, it out that Greek case-law obviously does not

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give a clear ruling on the nature of the ties translators are subject to an internal system between the translators and the Greek of sanctions with respect to compliance Ministry of Foreign Affairs. The translators with their obligations. and the Commission, on the other hand, point out that it has in fact already been determined in the main proceedings that the translators undertake their activities in a relationship of employer and employee.

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OPINION OF M R GEELHOED — JOINED CASES C-78/02 T O C-80/02

will comment on it as follows for the sake the Member States to provide in their of completeness, though superfluously. internal legal systems for the possibility of correcting any tax improperly invoiced where the person who issued the invoice shows that he acted in good faith. 5

35. In the second question it submits for a preliminary ruling the national court asks whether the formal principle governing the tax as set out in Article 21(1)(c) of the Sixth 37. In the judgment in Schmeinck & VAT Directive must be declared inappli- Cofreth the Court added that VAT which cable where under Article 4(5) of the Sixth has been improperly invoiced can be Directive the authorities are deemed not to adjusted without such adjustment being be taxable persons, the tax has not been made conditional upon the issuer of the passed on to the end consumer and the relevant invoice having acted in good faith provider of the service calls for the reim- where the issuer of the invoice has in bursement of the VAT mistakenly paid. Or, sufficient time wholly eliminated the risk conversely, where the State acts as a non- of any loss in tax revenues. 6 taxable provider of a service, are amounts which are formally (though mistakenly) mentioned as VAT on the invoice within the meaning of Article 21(1)(c) of the Sixth Directive nevertheless not owed as VAT?

The amount mentioned on an invoice by a person who provides services to the State as a salaried employee is not VAT within the meaning 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 where the person providing these services mistakenly considers that he is providing services to the State as a self-employed person whilst, in reality, he is an employee and, on the recommendation of his employer, charges VAT on the invoices issued by him and not on his total earnings received from the State, which in law constitute the tax basis of assessment to VAT, subsequently collected from his earnings, but where the amount thereof is determined on the earnings by means of an internal deduction method and the earnings are regarded as containing the amount of VAT owed, while the State reduces the amount of legitimate earnings paid to that person by the element of VAT they are calculated to contain.

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