European Commission v French Republic.
Date: 2010-05-06
25. The Court has held, as regards Article 12(3)(a), third subparagraph, of the Sixth Directive, that there is nothing in the text of that provision which requires that it be interpreted as meaning that the reduced rate can be charged only if it is applied to all aspects of a category of supply covered by Annex H to that directive, so that a selective application of the reduced rate cannot be excluded provided that no risk of distortion of competition results (see Zweckverband zur Trinkwasserversorgung und Abwasserbeseitigung Torgau-Westelbien , paragraph 41, and, by analogy, Commission  v France , paragraph 27).
26. The Court has inferred that, subject to compliance with the principle of fiscal neutrality inherent in the common system of VAT, Member States may apply a reduced rate of VAT to concrete and specific aspects of a category of supply covered by Annex H to the Sixth Directive (see Zweckverband zur Trinkwasserversorgung und Abwasserbeseitigung Torgau-Westelbien , paragraph 43).
27. Since Article 98(1) and (2) of Directive 2006/112 in essence repeats the wording of Article 12(3)(a) of the Sixth Directive, the interpretation given by the Court to the earlier provision should be extended to the provision replacing it.
29. The possibility thus granted to Member States of applying the reduced rate of VAT selectively is justified, inter alia, by the fact that, since that rate is the exception, the restriction of its application to concrete and specific aspects is consistent with the principle that exemptions or derogations must be interpreted restrictively ( Commission  v France , paragraph 28).
30. However, it must be pointed out that the exercise of that possibility is subject to the twofold condition, first, to isolate, for the purposes of the application of the reduced rate, only concrete and specific aspects of the category of supply at issue and, secondly, to comply with the principle of fiscal neutrality. Tho se conditions seek to ensure that the Member States make use of that possibility only under conditions ensuring the correct and straightforward application of the reduced rate chosen and the prevention of any possible evasion, avoidance or abuse.
32. In this connection, it must be recalled that those criteria, such as the expectations of a typical consumer, to which the Commission refers, are intended to protect the functioning of the VAT system in the light of the diversity of commercial operations. However, the Court itself has acknowledged that it is impossible to give exhaustive guidance on that issue ( CPP , paragraph 27) and pointed out that it is necessary to take into account all the circumstances in which the transaction at issue takes place ( CPP , paragraph 28; Levob Verzekeringen and OV Bank , paragraph 19, and Case C‑425/06 Part Service  [2008] ECR I‑897, paragraph 54).
33. It follows that, while those criteria may be applied on a case-by-case basis, in order to prevent, inter alia, the contractual structure put in place by the taxable person and the consumer from leading to an artificial splitting into a number of fiscal transactions of a transaction which, from an economic point of view, must be regarded as a single transaction, they cannot be regarded as decisive for the purpose of the exercise by the Member States of the discretion left to them by Directive 2006/112 as regards the application of the reduced rate of VAT. The exercise of such discretion requires general and objective criteria, such as those identified in Commission  v France  and Zweckverband zur Trinkwasserversorgung und Abwasserbeseitigung Torgau-Westelbien  and reiterated in paragraphs 26, 28 and 30 of this judgment.
34. Accordingly, in order to rule on the merits of this action, it is not necessary to examine whether, as the Commission maintains, the supply of services by undertakers must be regarded as a single transaction from the point of view of the expectations of a typical consumer. On the other hand, it is necessary to ascertain whether the transportation of a body by vehicle, in respect of which the French legislation provides for the application of a reduced rate of VAT, constitutes a concrete and specific aspect of that category of supply, as set out in Annex III, point 16, to Directive 2006/112, and, if so, to examine whether or not the application of that rate undermines the principle of fiscal neutrality.
The classification of the transportation of a body by vehicle as a ‘concrete and specific aspect’ of the supply of services by undertakers
35. In order to answer the question whether the transportation of a body by vehicle constitutes a concrete and specific aspect of the supply of services by undertakers, it is necessary to consider whether it entails a service which is, as such, separately identifiable from the other services provided by those firms.
40. As regards the issue of whether the application of a reduced rate to the transportation of a body by vehicle undermines the principle of fiscal neutrality inherent in the common system of VAT, that principle precludes treating similar goods and supplies of services, which are thus in competition with each other, differently for VAT purposes (see, inter alia, Commission  v France , paragraph 25, and Zweckverband zur Trinkwasserversorgung und Abwasserbeseitigung Torgau-Westelbien , paragraph 42).
44. In this connection, the Commission has not expressly stated how such practices, which it has not established to exist, would be liable to distort competition between service providers. It must be added that, should practices such as those to which the Commission refers be proven, it would be for the competent national authorities, who have the task of ensuring the correct and straightforward application of the reduced rate they have chosen and the prevention of any possible evasion, avoidance or abuse (see paragraph 30 of this judgment), to examine whether those practices may be considered to be an abusive practice by referring, if necessary, to the criteria developed to this effect by the Court’s case-law (see, inter alia, Case C-255/02 Halifax and Others  [2006] ECR I-1609, paragraphs 74 to 76).