OPINION OF MRS ADVOCATE GENERAL ROŽĖS

DELIVERED ON 6 MAY 1982 ( 1 )

Mr President,

Members of the Court,

The Coun has received a request from the Finanzgericht München [Finance Court, Munich] for a preliminary ruling on the interpretation of the expression “consideration” in Article 8 (a) of the Second Council Directive of 11 April 1967.

I —

The facts are as follows:

In June 1971, B A.Z. Bausystem AG of Zurich [hereinafter referred to as “Bausystem”] was given a contract by a consortium of four German undertakings to construct a car park in West Berlin. Since it had no branch in the Federal Republic of Germany, Bausystem had the work carried out by a subcontractor.

Serious faults appeared in the construction, and on 2 July 1973 the consortium withdrew the work from Bausystem. Having initially obtained reimbursement of the expenses which it had incurred, on 11 January 1974 the undertaking claimed the balance from the consortium. The latter refused to pay and Bausystem then brought an action before the Landgericht München [Regional Court, Munich], which on. 24 February 1977 ordered the consortium to pay the balance of DM 665586, together with interest thereon at 5 % from 15 January 1974. On appeal the Oberlandesgericht München [Higher Regional Court, Munich] on 24 November 1978, after deducting the savings made by Bausystem and also the amounts paid to it on account by the consortium and after performing various set-offs, reduced the amount payable to Bausystem to DM 584249.63, together with interest thereon at 5 % from 15 January 1974.

The German tax authorities took the view that, following the termination of the contract by the consortium, the provision of services had been completed and that the turnover which Bausystem had derived therefrom was taxable for 1973.

After inspection of the company's records, the tax authorities assessed the value-added tax for 1973 at DM 191050.85, including in the basis of assessment the interest paid pursuant to the judgment of the Oberlandesgericht, amounting to DM 143628.

The taxable person, Bausystem, objects to the tax authorities' claim for payment of DM 15799. That amount, which was reduced during the proceedings to DM 14233.40, represents the amount of value-added tax payable on the gross amount paid by the consortium in respect of interest pursuant to the judgment of the Oberlandesgericht (11/111 of DM 143628).

The Finanzgericht München, before which Bausystem brought an action, has asked the Court whether the “consideration” which constitutes the basis of assessment of value-added tax under Article 8 (a) of the Second Council Directive of 11 April 1967 on the harmonization of legislation of Member States concerning turnover taxes includes payments which an undertaking receives in addition to the agreed price of the services provided because that sum is not paid in due time, where the additional payment is calculated in the form of interest on the outstanding claim and its purpose is to indemnify the creditor for the damage due to the delay in payment.

Before that question is examined more closely, it should be noted that the Finanzgericht accepts that the sum of DM 584249.63, the amount at which the balance of the price for the services provided was assessed, is covered by the expression “consideration”. It entertains doubts only as to the “supplementary” nature of the interest paid.

The provision which the Court has been asked to interpret was amended by the Sixth Council Directive of 17 May 1977. It will therefore be necessary to determine whether that amendment affects the interpretation to be given to the corresponding provision of the Second Directive. That does not seem to be the case: the provision which is now in force in fact confirms the interpretation which I shall propose to the Court.

II —

The first paragraph of Article 8 reads as follows:

“The basis of assessment shall be:

(a) in the case of supply of goods and of the provision of services, everything which makes up the consideration for the supply of the goods or the provision of services, including all expenses and taxes except the value-added tax itself;

...”

Annex A, which is an integral part of the directive (Article 20), provides in paragraph 13:

“The expression ‘consideration’ means everything received in return for the supply of goods or the provision of services, including incidental expenses (packing, transport, insurance, etc.), that is to say not only the cash amounts charged, but also, for example, the value of the goods received in exchange or, in the case of goods or services supplied by order of a public authority, the amount of the compensation received.

...

Further, the expenses paid in the name and for the account of the customer which are shown in the accounts of the supplier as transitory items shall not be included in the basis of assessment...”

It might be considered that interest provided for in a contract in the event of late payment, upon which the parties have agreed in advance, amounts to a supplementary payment in addition to the principal payment. It would further be necessary to determine whether the payment of interest in such a case might not be analysed as the grant of credit, which the Member States were empowered to exempt in accordance with Article 10(3) of the Second Directive and which is now exempt under Article 13 B (d) (1) of the Sixth Directive.

In this case, however, the undertaking was compelled to agree to a delay in payment by the recipient of its services. The interest payable in return for that delay was fixed by a court in application of the provisions of the Bürgerliches Gesetzbuch [German Civil Code] and the Handelsgesetzbuch [German Commercial Code]: the judgment of the Oberlandesgericht München may be said to have replaced the invoice.

The granting of credit in those circumstances has only a remote and, as it were, forced connection with the main payment; the interest in respect of that credit constitutes merely compensation excluding any profit and cannot be described as “supplementary” payment.

On the other hand, the interest which the consortium was ordered to pay cannot normally be equated with financial expenses which may be deducted from the taxable amount in respect of the tax paid at the preceding stage: if tax were to be paid on such interest by Bausystem, and the consortium had no right of deduction, the resulting situation would be contrary to the system of deduction of input tax.

As a result, interest awarded by a judgment constitutes simply the reimbursement of expenses, without any possibility of gain or loss, and is not taxable. It does not constitute the consideration (“Entgelt”) for a commercial transaction.

III —

The changes introduced by the Sixth Directive do not call in question that viewpoint.

The taxable amount within the territory of the country is now defined in Article 11 A of that directive as follows:

“(1) The taxable amount shall be: (a) in respect of supplies of goods and services other than those referred to in (b), (c) and (d) below, everything which constitutes the consideration which has been or is to be obtained by the supplier from the purchaser, the customer or a third party for such supplies including subsidies directly linked to the price of such supplies; ...”

That new wording is the result of amendments introduced in relation to the chargeable event and the chargeability of tax. Under the Sixth Directive, Member States may provide that the tax is to become chargeable, for certain transactions or for certain categories of taxable person, either no later than the issue of the invoice or of the document serving as invoice, or no later than the receipt of the price, or, where an invoice or document serving as invoice is not issued, or is issued late, within a specified period from the date of the chargeable event (the third paragraph of Article 10(2)).

In so far as a Member State has recourse to that power, the tax becomes chargeable only after the chargeable event has occurred; even in that case, the taxable amount is determined at the date of that event.

The proposal for the Sixth Directive submitted by the Commission to the Council on 29 June 1973 and amended on 12 August 1974 included the following provision relating to the taxable amount (Article 12 A (3) (c)):

“The taxable amount shall not include:

...

(c) interest to be paid on deferred or delayed payments.

...”

The Commission's proposal concerning that matter was not accepted by the Council; nevertheless the reasons given by the Commission remain valid for interest awarded by judgment: their exclusion is justified by the fact that such interest, being intended to penalize the buyer, cannot be said to form part of a normal commercial transaction.

On the other hand, the new Article 11 contains a provision which might cover a situation such as that concerned in this case. Article 11 A (3) excludes from the taxable amount:

“(c) the amounts received by a taxable person from his purchaser or customer as repayment for expenses paid out in the name and for the account of the latter and which are entered in his books in a suspense account. The taxable person must furnish proof of the actual amount of this expenditure and may not deduct any tax which may have been charged on these transactions.”

It might therefore be contended that the Oberlandesgericht fixed current account interest in accordance with the provisions of the Handelsgesetzbuch. The interest which is added to the debit balance on a current account is distinct from the debt for the goods supplied or services provided; it is not part of the “consideration” for the debt.

However, the very wording of Article 8 (a) of the Second Directive alone leads to that result and my opinion is that the Court should rule that:

The basis of assessment referred to in Article 8 (a) of the Second Council Directive of 11 April 1967 on the harmonization of legislation of Member States concerning turnover taxes does not include interest awarded to an undertaking by a judicial decision where such interest has been awarded to it by reason of the fact that the balance of the consideration for the services provided has not been paid in due time.

( 1 ) Translated from the French-