Commission of the European Communities v French Republic.
Date: 2005-10-06
28. It should be remembered that, according to settled case-law, the right to deduct provided for in Article 17 et seq. of the Sixth Directive is an integral part of the VAT scheme and, in principle, may not be limited. That right must be exercised immediately in respect of all the taxes charged on input transactions. Any limitation of the right to deduct VAT affects the level of the tax burden and must be applied in a similar manner in all the Member States. Consequently, derogations are permitted only in the cases expressly provided for by the Sixth Directive (see, in particular, Commission  v France , cited above, paragraphs 15 to 17; BP Supergas , cited above, paragraph 18; and Case C-409/99 Metropol and Stadler  [2002] ECR I-81, paragraph 42).
29. In that regard, Article 17(1) of the directive provides that the right to deduct shall arise at the time when the deductible tax becomes chargeable and Article 17(2) states that, in so far as the goods and services are used for the purposes of his taxable transactions, the taxable person shall be entitled to deduct from the tax which he is liable to pay or paid in respect of goods or services supplied or to be supplied to him by another taxable person.
30. As regards mixed taxable persons, under the first and second subparagraphs of Article 17(5) of the Sixth Directive the right to deduct is calculated according to a fixed proportion in accordance with Article 19 thereof. The third subparagraph of Article 17(5) nevertheless permits Member States to authorise other methods for determining the right to deduct listed in that paragraph, in particular determination of a proportion for each sector of business or deduction on the basis of the use of all or part of the goods and services for a specific activity.
31. Article 11A(1)(a) of the Sixth Directive provides that subsidies directly linked to the price of a good or service are taxable in the same way as that good or service. As regards subsidies which are not directly linked to price, including those at issue in the present case, Article 19(1) of the Sixth Directive provides that the Member States may include them in the calculation of the denominator of the proportion applicable where a taxable person carries out, at the same time, transactions in respect of which VAT is deductible and others which are exempt.
32. As the Commission has rightly pointed out, with the exception of those two provisions, the Sixth Directive makes no provision for subsidies to be taken into account in the calculation of VAT.
33. However, it should be pointed out that the national provisions at issue make the right to deduct VAT, where the purchase of the good concerned is financed by a subsidy, subject to the condition that the depreciation of that good be passed on in the price of the transactions carried out by the taxable person. That condition is not provided for in the Sixth Directive and thus constitutes a limitation of the right to deduct which is not permitted by that directive.
34. In that regard, first, the arguments of the French Government based on the second paragraph of Article 2 of the First Directive must be rejected. That provision merely lays down the principle of the right to deduct, and the conditions applicable thereto are laid down in the provisions of the Sixth Directive. It does not constitute a basis for a limitation of the right to deduct not provided for in those provisions (see Commission  v France , cited above, paragraph 23).
35. Second, it should be pointed out, as noted by the Advocate General in paragraph 23 of his Opinion, that the Member States are required to apply the Sixth Directive even if they consider it to be less than perfect. It is stated in Case         C-338/98 Commission  v Netherlands  [2001] ECR I-8265, paragraphs 55 and 56, that even if the interpretation put forward by certain Member States better served the aims of the Sixth Directive, such as fiscal neutrality, the Member States may not disregard the provisions expressly laid down in that directive.
36. As regards the arguments of the Kingdom of Spain based on Article 19 of the Sixth Directive, it should be noted, first, that that provision is only applicable to mixed taxable persons and, second, that it applies only in the situations which it provides for (see Case C-204/03 Commission  v Spain  [2005] ECR I-0000, paragraphs 24 and 25).