Commission of the European Communities v Kingdom of Spain.
Date: 2005-10-06
21. Article 17(2) of the Sixth Directive sets out the principle of the right to deduct VAT. The latter concerns input tax on the goods and services used by taxable persons for the needs of their taxed transactions.
23. As the Court has repeatedly pointed out, 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 in the Sixth Directive (see, in particular, Case 50/87 Commission  v France  [1988] ECR 4797, paragraph 17, Case C-62/93 BP Supergas [1995] ECR I-1883, paragraph 18, and Case C-409/99 Metropol and Stadler  [2002] ECR I-81, paragraph 42).
24. In that regard, it must be noted that Article 19 of the Sixth Directive, entitled ‘Calculation of the deductible proportion’, refers expressly to Article 17(5) of that directive, to which it is wholly related.
25. The provisions of the second indent of Article 19(1) on subsidies other than those specified in Article 11A(1)(a) of the Sixth Directive, that is to say subsidies which are not included in the price of the good or service provided and which do not form part of the taxable amount, must be read in the light of Article 17(5). However, as is clear from its wording, Article 17(5) only applies to mixed taxable persons. It follows that, given that it is not an exception applicable to both mixed and fully taxable persons, the second indent of Article 19(1) permits limitations of the right to deduct, taking account of the subsidies thus defined, only in the case of mixed taxable persons.
26. Consequently, by extending the restriction of the right to deduct to fully taxable persons, the general rule laid down in Law No 37/1992 introduces a restriction which goes beyond the one expressly provided for in Articles 17(5) and 19 of the Sixth Directive and infringes the provisions of the directive.
27. In relation to the special rule set out in the Law, it is sufficient to point out that it introduces a mechanism for limiting the right to deduct which is not provided for in Articles 17(5) and 19 of the Sixth Directive or in any other provision of the directive. Consequently, such a mechanism is not authorised by the directive.
28. The Spanish Government’s argument that its interpretation of Article 19 of the Sixth Directive enables balance in terms of competition, and hence the principle that VAT should be neutral, to be observed must be rejected. The Member States are required to apply the Sixth Directive even if they consider it to be less than perfect. As indicated in Case C-388/98 Commission  v Netherlands  [2001] ECR I-8265, paragraphs 55 and 56, even if the interpretation put forward by certain Member States better served certain aims of the Sixth Directive, such as fiscal neutrality, the Member States may not disregard the provisions expressly laid down in that directive by introducing, in this case, limitations of the right to deduct other than those laid down in Articles 17 and 19 of that directive.
30. In that regard, and as pointed out by the Advocate General in paragraph 24 of his Opinion, it must be established that the State authorities were prompted to adopt legislation or conduct contrary to Community law because of objective and significant uncertainty regarding the implications of the Community provisions concerned (see, to that effect, Case C-359/97 Commission  v United Kingdom  [2000] ECR I-6355, paragraph 92). However, there was no such uncertainty in this instance. It is thus not necessary to restrict the effects in time of the present judgment.