Royscot Leasing Ltd, Royscot Industrial Leasing Ltd, Allied Domecq plc and T.C. Harrison Group Ltd v Commissioners of Customs & Excise.
Date: 1999-10-05
20 As the Court has already held in paragraphs 18 and 19 of Commission v France, cited above, it must be inferred from its wording and origin that the second subparagraph of Article 17(6) of the Sixth Directive is to be construed as meaning that the expression `all the exclusions' comprises expenditure which is strictly business expenditure.  That provision accordingly authorises Member States to retain national rules which deny taxable persons the right to deduct not only VAT on means of transport which constitute the very tool of their trade but also VAT relating to the motor vehicles which are not, in any particular case, capable of being used privately.
21 Admittedly, as Royscot, Harrison and Domecq, among others, have pointed out, Article 17(6) of the Sixth Directive presupposes that the exclusions which Member States may retain pursuant to that provision were lawful under the Second Directive, which predated the Sixth Directive.
22 However, it should be borne in mind that, while Article 11(1) of the Second Directive introduced the right of deduction, Article 11(4) provided that Member States could exclude certain goods and services from the deduction system.
23 It follows from its wording, which is clear and unambiguous, that Article 11(4) authorised Member States to exclude from the right of deduction even expenditure which is strictly business-related.  It cannot be inferred from the second part of Article 11(4) of the Second Directive, which provides that the exclusions may relate in particular to certain goods and services capable of being used exclusively or partially for private needs, that Member States could exclude only expenditure in respect of such goods and services.  On the contrary, by using the term `in particular', the legislature expressed its clear intention not to limit the authorised exclusions to expenditure for goods and services capable of being used for private purposes.
24 Admittedly, as Royscot, Harrison and Domecq submit, Article 11(4) of the Second Directive did not confer on Member States an unlimited discretion to exclude all and any goods and services from the system of the right of deduction and thereby negate the system established by Article 11(1) of that directive.
25 However, in excluding from the right of deduction certain goods such as motor cars, the United Kingdom has not impaired the general system of the right of deduction, but has made use of an authorisation deriving from Article 11(4) of the Second Directive.  This is a fortiori the case inasmuch as cars are goods which, by their nature, are capable of being used exclusively or partially for the private needs of the taxable person or of his staff.
29 However, as all the governments which submitted observations point out, it should be noted that the wording of Article 17(6) of the Sixth Directive makes it clear that the authorisation granted to Member States to retain their existing legislation in regard to exclusion from the right of deduction remains in force until such time as the Council has adopted the provisions envisaged by that article.
30 This interpretation is consistent with that given by the Court in Case C-165/88 ORO Amsterdam Beheer and Concerto v Inspecteur der Omzetbelasting [1989] ECR 4081 to the former Article 32 of the Sixth Directive, which contained, for second-hand goods, a transitional provision similar to that of Article 17(6).  In paragraph 24 of that judgment, the Court held that until the Community legislature, which had failed to comply with the time-limit imposed for that purpose, had taken action, it was necessary to continue to apply Article 32 of the Sixth Directive, which merely authorised Member States which applied a special system of VAT to second-hand goods to retain that system.  Article 32 of the Sixth Directive was repealed by Council Directive 94/5/EC of 14 February 1994 supplementing the common system of value added tax and amending Directive 77/388/EEC - Special arrangements applicable to second-hand goods, works of art, collectors' items and antiques (OJ 1994 L 60, p. 16).
31 So far as Article 17(6) of the Sixth Directive is concerned, it is also for the Community legislature to establish a Community system of exclusions from the right to deduct VAT and thereby to bring about the progressive harmonisation of national VAT legislation.