OPINION OF ADVOCATE GENERAL

GEELHOED

delivered on 27 November 2003

Case C-381/01



Commission of the European Communities

v

Italian Republic





Case C-495/01



Commission of the European Communities

v

Republic of Finland





Case C-144/02



Commission of the European Communities

v

Federal Republic of Germany





Case C-463/02



Comission of the European Communities

v

Kingdom of Sweden





(Failure to fulfil obligations, Article 11 of the Sixth Directive (77/388/EEC) – Failure to impose VAT on subsidies granted pursuant to Council Regulation No 603/95 on the common organisation of the market in dried fodder – Concept of subsidies directly linked to the price)

– a maximum guaranteed quantity (MGQ) of sun-dried and dehydrated fodder is established for each marketing year;

– the MGQ is then divided between the Member States, each being allocated a national guaranteed quantity (NGQ);

– if in any marketing year the MGQ is exceeded, the flat-rate aid payable is calculated as follows:

– for the first 5% by which the MGQ is exceeded, the aid is reduced in all Member States by an amount which is proportionate to that excess;

– for any excess beyond 5% additional reductions are made in any Member State in which production exceeds the NGQ increased by 5%, proportionate to this excess.

(a) undertakings which have concluded contracts with producers of fodder for drying;

(b) undertakings which have processed their own crops or, in the case of groups, those of their members;

(c) undertakings which have obtained their supplies from legal or natural persons providing certain guarantees to be determined, who have concluded contracts with producers of fodder for drying.

(a) the subsidy constituted the consideration or part of the consideration;

(b) the subsidy was paid to the supplier;

(c) the subsidy was paid by a third party.

(a) it must be paid to whoever supplies the goods or service;

(b) it must be paid by a third party, not the supplier of the goods or service;

(c) there must be a direct link between the subsidy and the price of the goods or service.

– Entitlement to aid arises once the fodder has left the processing undertaking, and various quality requirements have been met. The granting of aid is not dependent on a taxable transaction occurring (the supply of the dried fodder to a purchaser).

– Through the subsidy, the Community seeks to provide processors with regular supplies, and to safeguard producers’ incomes; the aim is not to ensure that dried fodder is supplied to purchasers at a price acceptable to them.

– The aid is calculated on the basis of the amount of dried fodder which has left the undertaking. The price received by the processing undertaking for the dried fodder fluctuates with the market price, but the aid remains constant.

– The same amount of aid is paid for supplying dried fodder, and for processing green fodder, though the costs incurred are not the same.

– Regulation No 603/95 sets a limit on the subsidy received. The Member States argue that such a cap precludes any direct link between subsidy and price, since the final amount of aid to be granted is not ascertainable at the time the chargeable event occurs.

– where there is integrated production: the processor processes his own production, or that of his members;

– where the processor acts as a ‘contract worker’: the producer’s green fodder is processed (dried) for him and subsequently returned to him;

– where the processor buys in green fodder from the producers, processes it and then sells it on.

(a) dismiss the Commission’s actions against the Italian Republic (Case C-381/91), the Republic of Finland (Case C-495/01), the Federal Republic of Germany (Case C-144/02) and the Kingdom of Sweden (Case C-463/02);

(b) pursuant to Article 69(2) of the Rules of Procedure, order the Commission to pay the costs of the proceedings;

(c) pursuant to Article 69(4) of the Rules of Procedure, order the Republic of Finland, the Kingdom of Sweden and the Federal Republic of Germany to bear their own costs as interveners.

– Original language: Dutch.

– OJ 1977 L 145, p. 1.

– OJ 1995 L 63, p. 1.

– The Italian Republic is supported by the Kingdom of Sweden and the Republic of Finland. The Republic of Finland is supported by the Federal Republic of Germany and the Kingdom of Sweden. The Federal Republic of Germany is supported by the Kingdom of Sweden and the Republic of Finland. The Kingdom of Sweden is supported by the Republic of Finland.

– Council Regulation (EEC) No 1117/78 of 22 May 1978 on the common organisation of the market in dried fodder (OJ 1978 L 142, p. 1), amended by Regulation No 3496/93 (OJ 1993 L 319, p. 17).

– Council Regulation (EEC) No 1417/78 of 19 June 1978 on the aid system for dried fodder (OJ 1978 L 171 , p. 1), amended by Regulation (EEC) No 1110/89 (OJ 1989 L 18, p. 1).

– Commission Regulation (EEC) No 1528/78 of 30 June 1978 laying down detailed rules for the application of the system of aid for dried fodder (OJ 1978 L 179, p. 10).

– Commission Regulation (EC) No 785/95 of 6 April 1995 laying down detailed rules for the application of Council Regulation (EC) No 603/95 on the common organisation of the market in dried fodder (OJ 1995 L 79, p. 5).

– Article 4 of Regulation No 603/95 lays down the maximum quantities of dried fodder eligible for aid. Amended by Council Regulation (EC) No 1347/95 of 9 June 1995 amending Regulation (EC) No 603/95 on the common organisation of the market in dried fodder (OJ 1995 L 131, p. 1). The text as amended reads as follows: (Article 4(1)): ‘A maximum guaranteed quantity (MGQ) per marketing year of 4 412 400 tonnes of dehydrated fodder for which ... aid ... may be granted is hereby established’; (Article 4(3)): ‘A maximum guaranteed quantity (MGQ) per marketing year of 443 500 tonnes of sun-dried fodder for which. … aid ... may be granted is hereby established’.

– To qualify for aid, the processing undertakings must have obtained the fodder from producers, groups of producers or buyers approved by the competent authorities of the Member States.

– Article 11(2) of Regulation No 603/95 reads as follows: ‘Where contracts as referred to in the first indent of Article 9(c) are special-order contracts for the processing of fodder supplied by the producers, they shall specify at least the area whose crop is to be delivered and include a clause laying down an obligation on processing undertakings to pay the producers the aid specified in Article 3 which they receive for the quantities processed under the contracts.’

– ‘For the purposes of this regulation, in order to obtain entitlement to the aid referred to in Article 3 of Regulation (EC) No 603/95, the products referred to in Article 2(1) shall be considered to have left the processing undertaking where: (a) they leave in the unaltered state: – the precincts of the processing undertaking, – where the dried fodder cannot be stored in those precincts, any storage place outside them offering adequate safeguards for the purposes of checking the fodder stored and which has been approved in advance by the competent authority, – in the case of mobile drying equipment, the equipment in which the dehydration is carried out and, if the dehydrated fodder is stored by the person having dried it, any storage place which satisfies the conditions of the second indent; or (b) they leave the precincts or any storage place referred to at (a) having been mixed within the processing undertaking with raw materials, other than those specified in Article 1 of Regulation (EC) No 603/95 and those used for binding, with a view to the manufacture of compound feed, and, at the time they leave the processing undertaking, are of sound and fair merchantable quality meeting the requirements for being placed on the market as feedingstuffs and have the following characteristics: …’

– First Council Directive (67/227/EEC) of 11 April 1967 on the harmonisation of legislation of Member States concerning turnover taxes (OJ, English Special Edition 1967, p. 14).

– Save where otherwise indicated, the provisions referred to below are from the Sixth Directive.

– First Report from the Commission on the application of the common system of value added tax, submitted in accordance with Article 34 of the Sixth Directive (77/388/EEC) of 17 May 1977, COM(83) 426 final, 14 September 1983, p. 37).

– Second Report from the Commission to the Council on the application of the common system of value added tax, submitted in accordance with Article 34 of the Sixth Directive (77/388/EEC) of 17 May 1977, COM(88) 799 final, 20 December 1988, p. 26.

– It is clear from the third recital of the preamble to Regulation No 603/95 that the aim of these rules is to limit Community dried fodder production.

– Case C-184/00 Office des produits wallons [2001] ECR I-9115.

– See also Office des produits wallons (cited above in footnote 18, paragraph 14). ‘[In order] to establish the existence of a direct link between the subsidy and the goods or services at issue ... it [is] necessary to verify at an early stage that the purchasers of the goods or services benefit from the subsidy granted to the beneficiary. The price payable by the purchaser must be fixed in such a way that it diminishes in proportion to the subsidy granted to the seller or supplier of the goods or services, which therefore constitutes an element in determining the price demanded by the latter’.

– See also the eleventh and twelfth recitals in the preamble to Regulation 603/95: ‘Whereas, in order to encourage a regular supply of green fodder to processors and to enable producers to benefit from the aid scheme, the granting of aid should in certain cases be conditional on the conclusion of contracts between producers and processing undertakings; whereas the contracts should, on the one hand, promote regular supplies for the processing undertakings and, on the other, permit the producers to benefit from the aid; whereas, to this end, it should be laid down that the contracts include certain information.’

– The Member States consider that this view is confirmed by Office des produits wallons (cited in footnote 18), paragraph 13.

– See also Advocate General Jacobs’ Opinion in Case C-384/95 Landboden-Agrardienste [1997] ECR I-7387, paragraphs 12 and 13.

– Case 154/80 [1981] ECR 445. A cooperative association ran a potato storage warehouse which its members paid an annual storage charge to use. In certain years the association decided not to levy the charge, since the cooperative already had sufficient funds available following an advantageous transaction involving real estate. As no charge was imposed, the value of the cooperative’s shares declined, which affected the net worth of the shareholder members. Could the decline in the value of the members’ shares in the cooperative be deemed to constitute consideration within the meaning of Article 8 of the Second Directive as being payment for the service (storing the potatoes)? The Court held that it could not: no sum of money or consideration had actually been received for the storage provided.

– See, inter alia, Case 268/83 Rompelman [1985] ECR 655, paragraph 19; Case C-37/95 GhentCoal Terminal [1998] ECR I-1, paragraph 15; Joined Cases C-110/98 to C-147/98 Gabalfrisa and Others [2000] ECR I-1577, paragraph 44, and Case C-98/98 Midland Bank [2000] ECR I‑4177, paragraph 19.

– Cited in footnote 23.

– Cited at footnote 18.

– Article 8 of Regulation No 603/95.

– Cited in footnote 16.

– Cited in footnote 16.

– Cited in footnote 18.

– I must make it clear that the transactions referred to in Article 11(A) of the Sixth Directive are not transactions carried out for the benefit of the public authority which grants the subsidy. Article 11(A) deals with situations involving three parties – the public authority granting the subsidy, the body which receives it, and the purchaser of the goods or recipient of the service supplied by the subsidised establishment.

– ‘It is therefore for the referring court to establish the existence of a direct link between the subsidy and the goods or services at issue. That makes it necessary to verify at an early stage that the purchasers of the goods or services benefit from the subsidy granted to the beneficiary. The price payable by the purchaser must be fixed in such a way that it diminishes in proportion to the subsidy granted to the seller or supplier of the goods or services, which therefore constitutes an element in determining the price demanded by the latter. The court must examine, objectively, whether the fact that a subsidy is paid to the seller or supplier allows the latter to sell the goods or supply the services at a price lower than he would have to demand in the absence of subsidy.’