Commission of the European Communities v Kingdom of Belgium.
Date: 2007-03-22
34. In any event, as the Advocate General observes in points 35 to 37 of her Opinion, even though the Community must observe public international law in the exercise of its powers (Case C-286/90 Poulsen and Diva Navigation [1992] ECR I-6019, paragraph 9), the Vienna Convention is not of decisive importance in this case.
36. It should be noted that Article 3 of the Protocol lays down two regimes of immunity, depending on whether taxes are direct or indirect. The first paragraph of Article 3 of the Protocol deals with the Communities’ immunity as regards direct taxes, while the second paragraph of that article relates to indirect taxes.
37. Under the regime relating to direct taxes, immunity is unconditional and general, since the Communities and their assets, revenue and other property are exempt from all direct taxation at national level. The regime relating to indirect taxes provides for immunity which is not unlimited; on the contrary, it is circumscribed and subject to conditions (see, to that effect, Case C-199/05 European Community  v Belgian State [2006] ECR I‑0000, paragraph 31).
38. Since the difference between those regimes is fundamental to the assessment of an immunity, it is essential to ascertain under which of those two regimes a dispute concerning a claim to a tax exemption falls.
39. Moreover, in an action for failure to fulfil obligations, it is incumbent on the Commission, during the pre-litigation procedure, to indicate the specific provision which defines the obligation with which the Member State is alleged to have failed to comply. That obligation on the Commission stems, in particular, from two requirements, namely the safeguarding of the rights of the defence of the Member State involved in such proceedings and the need clearly to delimit the subject-matter of the dispute.
40. The purpose of the pre-litigation procedure, inter alia, is to give the Member State concerned an opportunity to avail itself of its right to defend itself against the charges formulated by the Commission (Case C-439/99 Commission  v Italy  [2002] ECR I-305, paragraph 10, and Case C-350/02 Commission  v Netherlands  [2004] ECR I-6213, paragraph 18) and to ensure that any contentious procedure will have a clearly defined dispute as its subject-matter (see Case C-287/00 Commission  v Germany  [2002] ECR I-5811, paragraph 17, and Commission  v Netherlands , paragraph 19).
44. Furthermore, although the Protocol contains no definition of a direct tax and no provisions were adopted for the purpose of implementing the Protocol, some criteria for interpretation of that term are provided by Council Directive 77/799/EEC of 19 December 1977 concerning mutual assistance by the competent authorities of the Member States in the field of direct taxation (OJ 1977 L 336, p. 15). That directive, the scope of application of which, prior to its amendment by Council Directive 79/1070/EEC of 6 December 1979, was restricted solely to direct taxes, defined, in Article 1(2) thereof, tax on income and on capital, including in that term taxes on total capital, or on elements of capital, irrespective of the manner in which they are levied. As regards the tax which, according to the Commission and the Council, will be borne by the Communities, it is common ground that it is levied on the basis of Article 3(1)(c) of the Order and relates to the owners of real property rights in buildings. Since that tax is imposed directly on persons on the basis of their assets or their real property rights having a value as assets, it could be regarded as being levied on an element of capital within the meaning of Directive 77/799.
51. On the one hand, where that tax is passed on by virtue of a contractual provision in the lease, it must necessarily reflect the intention of the contracting parties, since the inclusion of such a provision falls within the scope of their freedom of contract. On the other hand, where the regional tax is passed on by an increase in the amount of the rent, it also falls within the scope of the parties’ freedom of contract, since the definition of the content of a contract, including the determination of an element of the contract such as the amount of the rent, requires the consent of the parties. Moreover, in the latter case the regional tax imposed on owners would not necessarily be passed on by them automatically and in its entirety to the tenants.
53. However, such market conditions cannot give rise to fiscal immunity, since such immunity must result from a measure of international, Community or national law.
56. It should be noted, with regard to the purpose of that immunity, that it was granted in order to ensure the Communities’ independence with regard to the Member States and their proper functioning (Case C‑191/94 AGF Belgium  [1996] ECR I‑1859, paragraph 19). However, even if the exemption of the other parties to the contract from the regional tax would constitute a financial advantage for the Communities, the Commission has not adduced any conclusive evidence to show that the passing on of the tax to it could adversely affect the independence of the Communities or hinder their proper functioning ( European Community v Belgian State , paragraph 43). Furthermore, an interpretation in the light of the aims of a provision cannot have the result of depriving the clear and precise wording of that provision of all effectiveness (see to that effect, European Community v Belgian State , paragraph 42, and, as regards the privileges and immunities of the European Central Bank, Case C‑220/03 ECB  v Germany  [2005] ECR I‑10595, paragraph 31).
57. As regards the circumstances in which the regional tax was imposed, it must be conceded that the objective pursued by the national legislature was doubtless to increase tax receipts. It should be borne in mind in this connection that, according to settled case-law, although direct taxation falls within the competence of the Member States, the latter must none the less exercise that competence in a manner consistent with Community law (Case C‑345/05 Commission  v Portugal  [2006] ECR I-0000, paragraph 10, and Case C‑513/04 Kerckhaert and Morres  [2006] ECR I-0000, paragraph 15). In so far as there is no infringement of Community law, that competence allows Member States, in principle, to introduce new taxes, to specify taxpayers and exemptions other than those in earlier analogous legislation or to increase the rate of taxation.
58. That conclusion is not undermined by the fact that, in the discussions surrounding the adoption of the Order, the competent minister of the Region of Brussels Capital referred to the probability that the amendments made by that order to the previous legislation would lead to a situation in which some property-owners would be able to pass on the tax in the amount paid, inter alia, by the Communities in their capacity as tenants. A Member State cannot be criticised for increasing its tax receipts by including in the scope of application of a tax persons who might enter into contracts with the Communities on the sole ground that the former might, in some market situations, be able to pass on part or all of that tax in the price of the goods or services provided to the Communities.
61. As the Belgian Government points out, that case-law concerns the interpretation of provisions of the Protocol which exempt officials and other servants of the Communities from national taxes on salaries, wages and emoluments paid to them. That exemption relates specifically to servants of the Communities and is limited to national taxes which could be charged on the income arising from performance of their functions, which is subject to Community tax. By contrast, in the present case there is no tax at the Community level and, in addition, only the provisions of the Protocol that exempt the Communities themselves from all direct taxes are in issue (see, to that effect, AGF Belgium , paragraph 14).