9.

I must therefore undertake a comparative analysis of those three methods and compare them further with the situation which would result from a straightforward application of the Sixth Directive in the absence of a special system within the meaning of Article 32. One observation is called for. On the very day of the hearing the Commission produced three tables supposedly describing three possible variations of the system which is applied in Ireland and could be applied in the Netherlands. Since this is an action for a declaration that a taxation system which exists in positive law is incompatible with Community law, the Commission must describe how the system actually operates and not set out hypothetical variants. In view of the belated production of that document, the two Member States were authorized to submit observations thereon after the hearing and they stated that none of the cases contemplated by the Commission corresponded to the real position in their countries. I am thus led to consider the national systems as described by the defendants and observe that Ireland illustrated the way in which those systems operate with examples of calculations during the written procedure. I shall compare those systems (fourth method), on the one hand, with the system which would result from the application of the Sixth. Directive in the absence of a special system for secondhand goods within the meaning of Article 32 (first method) and, on the other, with the methods contemplated by the Commission in its Proposal for a Seventh Directive (second and third methods). In so doing I shall adopt the hypothetical circumstances assumed by the parties for the purposes of the argument, namely: — Assumed rate of VAT: 10%; — Secondhand vehicle traded in to a garage for IRL 5500, which includes residual VAT of IRL 500; — The vehicle is traded in as part payment for a new vehicle with a gross value (including tax) of IRL 11000, of which 10% (that is to say IRL 1000) represents VAT; — Subsequently sold after renovation at a profit of IRL 600. First method: Application of the Sixth Directive in the absence of a special system within the meaning of Article 32 Here the taxable amount is the gross value at which the vehicle is traded in (including the residual VAT) plus the profit. It is thus 10% of (5500 + 600 = ) 6100, which amounts to IRL 610. Consequently: — The sale price including tax of the secondhand vehicle will be 6100 + 610 = IRL 6 710. — The total amount of VAT paid to the State will be 1000 + 610 = IRL 1 610. This example clearly illustrates how in the absence of special provisions there would be double taxation, which the Commission rightly attempts to eliminate in its Proposal for a Seventh Directive, and how there is a real risk that in order to escape double taxation private persons whose transactions with other private persons are exempt from VAT would be induced to bypass ordinary commercial channels. Second method: The ‘tax on tax’ method of deduction contemplated by the Commission in its Proposal for a Seventh Directive Under this method the garage: — First deducts the residual VAT from the gross purchase price of the vehicle traded in, that is to say 5500 — 500 = IRL 5 000. — It then deducts that residual VAT from the VAT payable on the net resale price of the vehicle, that is to say 10% of (5000 + 600 =) 5600, which equals 560. The VAT payable on the resale will thus be 560 — 500 = IRL 60. The VAT payable to the State for the transactions as a whole (sale of the new vehicle and resale of the secondhand vehicle) amounts to 1000 + 60 = IRL 1 060. The resale price of the secondhand vehicle will be IRL 6160 and will be made up as follows: — Purchase price after deduction of the residual VAT IRL 5000 — Profit IRL 600 — VAT on resale IRL 560. Third method:‘Base on base’ method contemplated by the Commission in its Proposal for a Seventh Directive Here account is taken of the difference between: — On the one hand, the resale price of the vehicle, including the residual VAT, that is to say 5500 + 600 = IRL 6 100; — On the other, the trade-in price including the residual VAT, that is to say IRL 5 500. The difference, IRL600, constitutes the dealer's profit margin and the basis for the calculation of the VAT payable, which amounts to 10% of 600, that is to say IRL 60. Here too the total amount of VAT received by the State amounts to IRL 1 060. The resale price of the secondhand vehicle amounts, as in the previous case, to IRL 6160, but is made up as follows: — Purchase price inclusive of the residual VAT IRL 5500 — Profit IRL 600 — VAT on resale IRL 60. Fourth method: System in force in the Netherlands and in Ireland The method followed in the two Member States consists of two successive operations. On the sale of the new vehicle and trade in of the secondhand vehicle the VAT which the garage will actually have to pay to the State is calculated by reference to a taxable amount which represents the difference between the sale price of the new vehicle exclusive of tax and the allowance on the trade-in exclusive of tax (in other words, after deduction of the residual VAT), that is to say 10% of (10000 — 5000 =) 5000, which equals IRL 500. On the resale of the secondhand vehicle the taxable amount is the aforesaid net value of the trade-in plus the profit, that is to say5000 + 600 = 5600, giving VAT of IRL 560 and a resale price of IRL6 160. The total VAT received by the State is 500 + 560, which again amounts to IRL 1 060.