CELEX: C2003/226/04
Language: en
Date: 2003-09-20 00:00:00
Title: Case C-204/03: Action brought on 14 May 2003 by the Commission of the European Communities against the Kingdom of Spain

20.9.2003              EN                             Official Journal of the European Union                                          C 226/3
for a preliminary ruling in the proceedings pending before that                   Member States relating to turnover taxes — Common
court between Daniel Fernando Messejana Viegas and                                system of value added tax: uniform basis of assessment
Companhia de Seguros Zurich SA, Mitsubishi Motors de
Portugal SA, participant: CGU International Insurance plc —
Agência Geral em Portugal, Instituto de Solidariedade e                      2.   Order the defendant to pay the costs.
Segurança Social (ISSS), on the interpretation of the Second
Council Directive 84/5/EEC of 30 December 1983 on the
approximation of the laws of the Member States relating to
                                                                             Pleas in law and main arguments
insurance against civil liability in respect of the use of motor
vehicles (OJ 1984 L 8, p. 17), the Court (First Chamber),
composed of: M. Wathelet, President of the Chamber, P. Jann
(Rapporteur) and A. Rosas, Judges; S. Alber, Advocate General;               The Commission charges the Kingdom of Spain with having
R. Grass, Registrar, has made an order on 24 July 2003, the                  failed to fulfil its obligations under a number of provisions of
operative part of which is as follows:                                       the Sixth Directive on two grounds:
                                                                             1.   Application of a deducible proportion to taxable persons
                                                                                  who carry out only transactions in respect of which value
Article 1(2) of the Second Council Directive 84/5/EEC of
                                                                                  added tax is deductible (Article 102(1) of the Spanish Law
30 December 1983 on the approximation of the laws of the
                                                                                  on VAT).
Member States relating to insurance against civil liability in respect
of the use of motor vehicles precludes national laws which provide for a
number of types of civil liability applicable to road-traffic accidents
laying down, in respect of one of them, maximum amounts of com-                   According to the Commission, the Spanish provision
pensation that are lower than the minimum amounts of cover laid                   broadens unlawfully the scope of the deductible propor-
down by that article.                                                             tion in that it applies not only to taxable persons who
                                                                                  carry out transactions in respect of which value added tax
                                                                                  is deductible and transactions in respect of which value
                                                                                  added tax is not deductible (mixed taxable persons), but
                                                                                  also to those who carry out only taxable transactions (fully
(1) OJ C 156 of 29.6.2002.                                                        taxable persons), just because they have received subsidies
                                                                                  which are not part of the basis of assessment of their
                                                                                  taxable transactions. According to Article 17(5) of the
                                                                                  Sixth Directive, the deductible proportion mechanism
                                                                                  applies only where taxable persons carry out both
                                                                                  transactions which are taxable but exempt and taxable
                                                                                  transactions.
Action brought on 14 May 2003 by the Commission of the
   European Communities against the Kingdom of Spain
                                                                                  Furthermore, the inclusion of subsidies in the deductible
                                                                                  proportion as regards mixed taxable persons is an option
                          (Case C-204/03)
                                                                                  which the Member States have and constitutes an
                                                                                  exception to the general principle of deduction of the
                          (2003/C 226/04)                                         amounts borne by way of VAT in respect of taxable
                                                                                  unexempted transactions. Therefore, that option may not
An action against the Kingdom of Spain was brought before the                     be exercised in order to treat unfavourably situations other
Court of Justice of the European Communities on 14 May                            than those provided for by the directive, contrary to what
2003 by the Commission of the European Communities, repre-                        has been provided by the Community legislature. The
sented by Enrico Traversa, Legal Adviser, and Lidia Lozano                        possible consequences for the neutrality of the tax arising
Palacios, of its Legal Service, acting as Agents.                                 from the use by the Member States of the option provided
                                                                                  for under Article 19 of the directive cannot justify the
                                                                                  extension by the Spanish authorities of the restriction on
                                                                                  deduction to fully taxable persons, since the necessary
The applicant claims that the Court should:                                       legal basis for it is lacking and it is a measure contrary to
                                                                                  the directive.
1.   Declare that, by maintaining in force provisions which pro-
     vide for a deductible proportion for taxable persons who                     The Spanish provision at issue results in double taxation,
     carry out only taxable transactions, and which lay down a                    since the taxable person who receives a subsidy uses it as
     special rule which limits the right to deduct VAT on the                     part of the consideration for the purchase of goods or
     purchase of goods or services just because they were sub-                    services. Such purchases are taxed in accordance with the
     sidised, the Kingdom of Spain has failed to fulfil its obliga-               Sixth Directive, so that the amount of the subsidy is
     tions under Community law and, in particular, Articles 17                    already subject to the relevant VAT. If that amount is then
     and 19 (2) and (5) of Sixth Council Directive 77/388/EEC (1)                 included in the denominator for the deductible propor-
     of 17 May 1977 on the harmonization of the laws of the                       tion, resulting in the restriction of the right to deduct of
 ---pagebreak--- C 226/4              EN                        Official Journal of the European Union                                           20.9.2003
    the taxable person who receives it, the subsidy concerned                Court of Justice, inasmuch as it is a special rule which has
    will be liable to VAT twice. Although Article 19 provides                no basis in the directive, applies to all taxable persons in
    expressly that the Member States may include in the                      receipt of a subsidy, including fully taxable persons, and,
    deductible proportions for mixed taxable persons those                   even it if its applied to mixed taxable persons, it may in
    subsidies which are not part of the basis of assessment,                 certain circumstances be less advantageous than using the
    that exception to the ‘normal’ method of calculation is a                option provided for by Article 19 of the directive.
    tool available to the national legislature to prevent a body
    which is ‘by its nature’ subsidised obtaining repayment of
    VAT for carrying out a merely nominal activity in order to
    qualify as a taxable person. However, that provision is to          (1) OJ 1977 L 145, p. 1.
    be interpreted restrictively. On the other hand, it is clear
    that, by including subsidies in the deductible proportion,
    the right to deduct of mixed taxable persons is reduced,
    while that is not possible with regard to fully taxable
    persons. Article 19 is an optional provision and the
    Member States may determine the procedures for
    implementing it provided they observe, as a whole, the              Reference for a preliminary ruling by the Tribunale
    basic principles and provisions of the Sixth Directive,             Amministrativo Regionale per la Lombardia — Sezione
    which contains other provisions which make it possible to           staccata di Brescia — by order of that Court of
    prevent deductions considered to be abusive.                        8 October 2002, 17 December 2002 and 14 February
                                                                        2003 in the case of Consorzio Aziende Metano —
                                                                        CO.NA.ME. against il Comune di Cingia de' Botti; with
                                                                                   the participation of Padania Acque S.p.A.
                                                                                                  (Case C-231/03)
2.  Laying down of a special rule which limits the right to
    deduct VAT owed for the purchase of goods or services
    financed in whole or in part by subsidies (second para-                                       (2003/C 226/05)
    graph of Article 104(2) of the Spanish Law on VAT).
                                                                        Reference has been made to the Court of Justice of the
                                                                        European Communities by order of the Tribunale
    That special rule, according to which subsidies to finance          Amministrativo Regionale per la Lombardia — Sezione stac-
    the purchase of certain goods or services do not give rise          cata di Brescia (Lombardy Regional Administrative Court —
    to the application of the deductible proportion and are             Separate Chamber for Brescia) of 8 October 2002,
    not included in the denominator but instead limit the right         17 December 2002 and 14 February 2003, received at the
    to deduct the VAT paid on the portion of the price of the           Court Registry on 28 May 2003, for a preliminary ruling in the
    goods or services financed by the subsidy, is incompatible          case of Consorzio Aziende Metano — CO.NA.ME. against il
    with the Sixth Directive. Indeed, the Spanish provision             Comune di Cingia de' Botti; with the participation of Padania
    establishes a limit on the right to deduct in respect of fully      Acque S.p.A. on the following question:
    taxable persons which is not provided for under the
    directive. As for mixed taxable persons, the only limitation
    possible under the directive is the inclusion of the
    subsidies in the denominator of the deductible proportion.
                                                                        Do Articles 43, 49 and 81 EC, in so far as they prohibit,
    The VAT which a taxable person has paid for a certain
                                                                        respectively, restrictions on the freedom of establishment of
    service or certain goods is always deductible in accordance
                                                                        nationals of a Member State in the territory of another Member
    with the rules on the right to deduct provided for by the
                                                                        State and on the freedom to provide services within the
    directive and, to that end, the source of the financing for
                                                                        Community in respect of nationals of Member States and the
    the goods or services are of no relevance whatever. The
                                                                        commercial practices of undertakings which have as their effect
    Member States may take into account only those subsidies
                                                                        the prevention, restriction or distortion of competition within
    which are not linked to the price of the transaction, and
                                                                        the European Union, preclude provision for the direct award,
    may choose whether or not to include them in the
                                                                        without the announcement of a tender, of the management of a
    deductible proportion only if the taxable person carries
                                                                        public contract for the distribution of gas to a company in
    out, at the same time, taxed and exempt transactions.
                                                                        which a local authority participates, whenever that participa-
    Application of the provision is optional and the Member
                                                                        tion in the share capital is such as to preclude any direct control
    States may determine the procedures for implementing it
                                                                        over the management itself and must it therefore be declared
    provided they observe the basic principles and provisions
                                                                        that, as is the case in these proceedings where the shareholding
    of the Sixth Directive as a whole.
                                                                        amounts to 0,97 % of the share capital, the essential precondi-
                                                                        tions for ‘in-house’ management are not met?
    The Spanish provision infringes the fundamental right to
    deduct VAT, acknowledged as such in the case-law of the