Banca popolare di Cremona Soc. coop. arl v Agenzia Entrate Ufficio Cremona.
Date: 2006-10-03
18. In order to interpret Article 33 of the Sixth Directive it must be viewed against its legislative background. To that end it is useful to recall the objectives pursued by the introduction of a common system of VAT, as outlined in the judgment in Joined Cases C‑338/97, C‑344/97 and C‑390/97 Pelzl and Others [1999] ECR I-3319, paragraphs 13 to 20.
19. According to the preamble to 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 (I), p. 14, ‘the First Directive’), harmonisation of legislation concerning turnover taxes should make it possible to establish a common market within which there is healthy competition and whose characteristics are similar to those of a domestic market, by eliminating tax differences liable to distort competition and hinder trade.
20. A common system of VAT was introduced by Second Council Directive 67/228/EEC of 11 April 1967 on the harmonisation of legislation of Member States concerning turnover taxes — Structure and procedures for application of the common system of value added tax (OJ, English Special Edition 1967 (I), p. 16, ‘the Second Directive’) and by the Sixth Directive.
21. Under Article 2 of the First Directive, the principle of the common system of VAT involves the application to goods and services, up to and including the retail trade stage, of a general tax on consumption exactly proportional to the price of the goods and services, whatever the number of transactions which take place in the production and distribution process before the stage at which tax is charged.
22. However, VAT is chargeable on each transaction only after deduction of the amount of VAT borne directly by the costs of the various price components. The procedure for deduction is so arranged by Article 17(2) of the Sixth Directive that taxable persons are authorised to deduct from the VAT for which they are liable the VAT which the goods or services have already borne and that the tax is charged, at each stage, only on the added value and is finally borne by the ultimate consumer.
23. In order to attain the objective of ensuring equal conditions of taxation for the same transaction, no matter in which Member State it is carried out, the common system of VAT was intended, according to the preamble to the Second Directive, to replace the turnover taxes in force in the various Member States.
24. Article 33 of the Sixth Directive accordingly permits a Member State to maintain or introduce taxes, duties or charges on the supply of goods, the provision of services or imports only if they cannot be characterised as turnover taxes.
25. In order to decide whether a tax, duty or charge can be characterised as a turnover tax within the meaning of Article 33 of the Sixth Directive, it is necessary, in particular, to determine whether it has the effect of jeopardising the functioning of the common system of VAT by being levied on the movement of goods and services and on commercial transactions in a way comparable to VAT.
26. The Court has stated in this regard that taxes, duties and charges must in any event be regarded as being imposed on the movement of goods and services in a way comparable to VAT if they exhibit the essential characteristics of VAT, even if they are not identical to it in every way (see Case C-200/90 Dansk Denkavit and Poulsen Trading  [1992] ECR I-2217, paragraphs 11 and 14, and Case C-308/01 GIL Insurance and Others  [2004] ECR I-4777, paragraph 32).
27. Article 33 of the Sixth Directive does not, on the other hand, preclude the maintenance or introduction of a tax which does not display one of the essential characteristics of VAT (Case C-130/96 Solisnor-Estaleiros Navais  [1997] ECR I-5053, paragraphs 19 and 20, and GIL Insurance and Others , paragraph 34).
28. The Court has established the essential characteristics of VAT. Notwithstanding certain differences of wording, it appears from the case-law that there are four such characteristics: it applies generally to transactions relating to goods or services; it is proportional to the price charged by the taxable person in return for the goods and services which he has supplied; it is charged at each stage of the production and distribution process, including that of retail sale, irrespective of the number of transactions which have previously taken place; the amounts paid during the preceding stages of the process are deducted from the tax payable by a taxable person, with the result that the tax applies, at any given stage, only to the value added at that stage and the final burden of the tax rests ultimately on the consumer (see, inter alia, Pelzl and Others , paragraph 21).
29. In order to prevent outcomes which are inconsistent with the objective pursued by the common system of VAT as set out in paragraphs 20 to 26 of the present judgment, any comparison of the characteristics of a tax such as IRAP with those of VAT must be made in the light of that objective. In that connection, particular attention must be paid to the need to safeguard the neutrality of the common system of VAT at all times.
30. In this case, as regards the second essential characteristic of VAT, it must first be observed that, whereas VAT is levied on individual transactions at the marketing stage and its amount is proportional to the price of goods or services supplied, IRAP is, in contrast, a tax charged on the net value of the production of an undertaking in a given period. Its basis of assessment is the difference appearing in the profit and loss account between the ‘value of production’ and the ‘production costs’ as defined by Italian legislation. It includes elements such as variation in stocks, amortisation and depreciation, which have no direct connection with the supply of goods or services as such. In those circumstances, IRAP cannot be considered proportional to the price of goods or services supplied.
31. Next, it must be observed, as regards the fourth essential characteristic of VAT, that the existence of differences in the method for calculating the deduction of tax already paid cannot exclude a tax from the prohibition laid down in Article 33 of the Sixth Directive if such differences are in fact technical in nature and do not prevent that tax from operating in essentially the same way as VAT. On the other hand, a tax levied on production in such a way that it is not certain that it will be borne, like a tax on consumption such as VAT, by the final consumer, is likely to fall outside the scope of Article 33 of the Sixth Directive.
32. In fact, whereas, through the mechanism of the deduction of tax laid down by Articles 17 to 20 of the Sixth Directive, VAT taxes only the final consumer and is completely neutral as regards the taxable persons involved in the production and distribution process prior to the stage of final taxation, regardless of the number of transactions involved (Case C‑317/94 Elida Gibbs  [1996] ECR I-5339, paragraphs 19, 22 and 23, and Case C‑427/98 Commission  v Germany  [2002] ECR I-8315, paragraph 29), that is not the case with IRAP.
33. First, a taxable person cannot ascertain exactly the amount of IRAP already included in the purchase price of goods and services. Second, if, in order to pass on the burden of the tax due in connection with his own activities to the following stage in the distribution or consumption process, a taxpayer could include that burden in his sale price, the basis of assessment would then include not only the value added but also the tax itself, with the result that the IRAP would be calculated on an amount based on a sale price incorporating, in anticipation, the tax to be paid.
34. In any event, even on the assumption that a taxable person liable to IRAP selling to final consumers will take account, in fixing his price, of the amount of the charge included in its general expenses, not all taxable persons have the possibility of thus passing on, or passing on in full, the burden of the tax (see, to that effect, Pelzl and Others , paragraph 24).
36. The Court has, it is true, held a tax which was levied as a percentage of the total sales effected and services provided by an undertaking during a specified period, less the purchases of goods and services by that undertaking during that period, to be inconsistent with the harmonised system of VAT. The Court observed in that case that the tax at issue was comparable, in essential respects, to VAT and that notwithstanding differences it retained its character as a turnover tax (see, to that effect, Dansk Denkavit and Poulsen Trading , paragraph 14).