OPINION OF ADVOCATE GENERAL SIR GORDON SLYNN

DELIVERED ON 6 MAY 1982

My Lords,

In this case I shall give my opinion immediately.

R.A. Grendel GmbH (“Grendel”) carries on business as a finance broker. In 1979 it earned DM 1601936 commission for negotiating credit and insurance cover. On 3 September 1980 the Finanzamt für Körperschaften in Hamburg (“the Finanzamt”) assessed Grendel to value-added tax (VAT) in respect of the services it had provided at 12 and 13% of the commission which it had respectively earned. Grendel challenged the assessment on the ground that it was entitled to exemption from VAT by virtue of Council Directive 77/388 of 17 May 1977 (Official Journal L 145/1, 13. 6. 1977). As will be recalled from Case 8/81 Becker v Finanzamt Münster-Innenstadt,19 January 1982, as yet unreported, this directive was due to be implemented by the Member States by 1 January 1978 at the latest. This deadline was subsequently extended to 1 January 1979. The Federal Republic of Germany adopted the necessary implementing measures only on 26 November 1979 and they came into effect on 1 January 1980 (see the Umsatzsteuergesetz of 26 November 1979, Bundesgesetzblatt I, 1979, p. 1953). According to the order for reference in the present case, this delay was due to a disagreement between the two houses of the German Federal Parliament concerning the use of the concept “inland”, having regard to the postwar division of Germany.

As in the Becker case, the present dispute concerns the period in which the Federal Republic of Germany, contrary to its obligations under Community law, had not implemented the direttive. Under the German law in force in 1979 (the Umsatzsteuergesetz of 16 November 1973, Bundesgesetzblatt I, 1973, p. 1682) VAT was due on the transactions in question but under the directive which, it is said, the Finanzamt should have applied, they were exempt. The Finanzgericht was of the opinion that Grendel was entitled to rely on the terms of the directive in order to justify its claim to exemption but felt it appropriate to obtain a preliminary ruling on the point from the Court. The question in the order for reference is as follows:

“Is Article 13 B (d) 1 of the Sixth Council Directive of 17 May 1977 (77/388/EEC) to be interpreted as conferring on a taxable person, as from the date on which it took effect, a direct legal right to exemption from tax in respect of the transactions referred to therein, even where exemption is (not yet) provided for under national law on turnover tax.”

Although the order for reference states that the transactions in issue are to be exempted under Article 13 B (d) 1., the same provision in question in the Becker case, it would seem that Article 13 B (a) is the more likely basis for exemption in so far as any insurance broking transactions are concerned. This, however, is a point which has not been discussed before the Court and accordingly it does not arise for decision, given the wording of the question referred by the Finanzgericht. In any event, there does not seem to be any significant difference between Article 13 B (a) and Article 13 B (d) 1., so far as direct effect is concerned.

When asked to comment on the decision in the Becker case, the Finanzgericht adhered to its view that it was necessary for the Court to give an answer to the question referred in the present case. The arguments put to the Court, however, in support of the view that Article 13 B (d) 1. cannot be relied on by Grendel are, to a large part, the same as those which were considered in the Becker case and it does not seem to me to be necessary to go over them again. The extent to which, and the way in which, this regulation can be directly invoked by a citizen before a national court against a Member State which has failed to implement the directive is, in my view, fully dealt with for present purposes in the Court's judgment in the Becker case. Despite the reference which has been made in the submissions to the Court to comments tending to suggest that the trend of the Court's decisions in relation to direct effect has produced results which were not intended, and which are not justified, it does not seem to me that there is reason to question the approach which the Court has hitherto adopted. Neither does it seem to me necessary that the Court should, as it has been invited to do, deliver ex cathedra a restatement of the principle which is to be deduced from its previous decisions.

The practical difficulties which it is suggested could arise from the result of a decision in favour of direct effect, were fully analysed in the Becker decision and it does not seem to me necessary to say more about them than the Court said in the Becker case. Reference has been made in the course of argument to Article 13 C of the directive. The effect of the option given by Article 13 C on the other arguments which were put forward in favour of direct effect were again fully gone into in my opinion, and in the judgment of the Court in the Becker case, and I do not think that I can usefully add anything to what was said there. It has been suggested that certain difficulties can arise in regard to what have been described in argument as the hybrid nature of the transaction of certain companies, but, as counsel for the Commission has pointed out, that question does not arise in this case and it is, in my opinion, already sufficiently dealt with in the Court's judgment in the Becker case.

I would not have regard, in deciding the question referred, to what was said in the minutes of the Council meeting of 26 June 1978, since those do not, in my view, constitute material to which it is proper to have regard when construing the directive. It is accordingly not necessary to come to a view on the apparent difference of opinion between counsel for the Commission and counsel for the Council as to what is the proper effect of those minutes.

There are, however, two points which perhaps I should comment on, which have been raised. The first, in fact, was raised by the Finanzgericht itself in its order for reference. That was whether internal political difficulties in connection with the implementation of a directive in national law may give the Member States some latitude in terms of the time within which they are obliged to do so.

It is well-established that a Member State may not rely on political circumstances, whether or not in existence at the time when it became bound by an obligation under the Treaty, to excuse its failure to fulfil that obligation and it is also well-established that this principle applies in the case of directives. I refer to Case 8/70 Commission v Italy [1970] ECR 961 at paragraphs 8-10, Case 30/72 Commission v Italy [1973] ECR 161 at paragraphs 10-11 of the judgment and Case 79/72 Commission v Italy [1973] ECR 667. If it proves impossible to implement a directive within the time fixed for doing so, the only action compatible with Community law which a Member Sute can adopt is to take the appropriate initiatives to obtain an extension of time (Case 52/75 Commission v Italy [1976] ECR 277 at paragraph 12 of the judgment). The consequence is that if, due to political difficulties, the directive is not implemented before the expiry of the time-limit is extended, which happened in this case, the Member State concerned cannot, as against individuals, plead its own failure to perform its obligations under the directive and those provisions of the directive which are unconditional and sufficiently precise may be relied on, as explained in the judgment in the Becker case.

The second point is to be found in the written observations submitted on behalf of the Italian Government and is in addition to those to which I have already referred. An argument that the terms of the directive cannot be relied on by Grendel was there based, as I understand it, on the proposition that the only person who bears the fiscal burden of VAT is the final consumer and that taxable persons higher up in the chain of transactions an only as collectors of the tax. In consequence the scheme created by the directive must be looked at as a whole and the system of exemptions and deductions is to be applied in the light of the effect on the tax burden of the final consumer alone.

This analysis, as it is set out, appears to me to confuse the economic burden of the tax, which ultimately falls on the final consumer because he cannot pass it on to anyone else with the fiscal burden. Article 2 of the directive clearly provides that it is the supply of goods or services for consideration by the taxable person that is subject to VAT. The taxable person is thus the person effecting the supply, not the person who provides the consideration. The chargeable event occurs when the goods are delivered or when the services are performed (Article 10 (2)) and the taxable amount is, in brief, the consideration obtained by the supplier (see Article 11). The exemptions similarly relate to the supply of goods or services (Articles 13 to 16) and deduction is a right of the supplier in so far as goods and services supplied to him are used for the purposes of his taxable transactions (see Article 17 (2)). The person to whom the goods or services are supplied is not normally liable to pay VAT (see Article 21). Accordingly, in fiscal terms, and under the scheme adopted in the directive, it is the supplier at every stage in the chain of taxable transactions who is subject to the tax. The fact that, at the end of the day, it is the final consumer who must shoulder the economic burden does not affect the legal position of the supplier and it is not possible, in my view, to regard him as nothing more than a collector of the tax.

Accordingly, and despite the two additional arguments which have been raised, for the reasons I have given here and in the Becker case, it is my view that the question referred to the Court by the Finanzgericht be answered on the following lines :

Article 13 B (d) 1. of the Sixth Council Directive 77/388/EEC of 17 May 1977 (on the harmonization of the laws of the Member States relating to turnover taxes — Common system of value-added tax: uniform basis of assessment) could be relied upon by a person carrying out the transaction therein referred to, who had refrained from passing on turnover tax to persons following him in the chain of supply, as from 1 January 1979 although the directive had not been implemented and the State could not claim, as against him, that it had failed to implement the directive.