CJ, 14-05-2020, nr. C-276/19

In Decision (EU) 2020/135 of 30 January 2020 on the conclusion of the Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community (‘the EAEC’) (OJ 2020 L 29, p. 1), the Council approved that agreement — which was attached to that decision (OJ 2020 L 29, p. 7; ‘the Withdrawal Agreement’) — on behalf of the European Union and the EAEC.

Article 86 of the Withdrawal Agreement, headed ‘Pending cases before the Court of Justice of the European Union’, is worded as follows:

In accordance with Articles 126 to 132 of the Withdrawal Agreement, during the transition period, which begins on the date of entry into force of that agreement and will end on 31 December 2020 unless it is extended, EU law is to continue to apply in the United Kingdom and its territory under the conditions set out in that agreement.

The Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment (OJ 1977 L 145, p. 1; ‘the Sixth VAT Directive’) has been amended on a number of occasions.

Article 27 of that directive, which appeared under Title XV, headed ‘Simplification procedures’, provided as follows:

Council Directive 2004/7/EC of 20 January 2004 (OJ 2004 L 27, p. 44) amended the Sixth VAT Directive as regards conferment of implementing powers and the procedure for adopting derogations; specifically, it amended Article 27(1) to (4) thereof as follows:

With effect from 1 January 2007, the Sixth VAT Directive was repealed and replaced by Directive 2006/112.

Title I of Directive 2006/112 defines the subject matter and scope of the directive. Article 2(1) thereof, which comes under that title, states as follows:

Title XIII of Directive 2006/112 relates to ‘Derogations’, and Chapter 2 of that title is headed ‘Derogations subject to authorisation’. Section 1 of that chapter concerns simplification measures and measures to prevent tax evasion or avoidance.

Article 394, which appears in that section, provides:

Article 395, which also appears in that section, provides:

As a preliminary point, it should be noted that the Commission bases its action on Directive 2006/112, which had not yet entered into force when the United Kingdom adopted the contested amendments — namely those described in paragraph 25 above — but which had entered into force by the time of the expiry of the period allowed by the Commission for the Member State concerned to comply with its reasoned opinion. According to the Court's case-law, a complaint seeking a declaration of a failure to fulfil obligations which were created in the original version of an EU measure, subsequently amended or repealed, and which were maintained in force under the provisions of a new EU measure, is admissible. Conversely, the subject matter of the dispute cannot be extended to obligations arising under new provisions which do not correspond to those arising under the original version of the measure concerned, for otherwise it would constitute a breach of the essential procedural requirements of infringement proceedings. Consequently, the present action must be examined in the light of Directive 2006/112, since it is not in dispute that the obligations incumbent on Member States under Article 395(2) of that directive correspond to those which were already applicable before it entered into force, under Article 27(2) of the Sixth VAT Directive (see, by analogy, judgments of 17 June 2010, Commission v France, C-492/08, EU:C:2010:348, paragraphs 31 and 32, and of 22 February 2018, Commission v Poland, C-336/16, EU:C:2018:94, paragraph 44 and the case-law cited).

Furthermore, it is necessary to reject at the outset one of the arguments put forward by the Commission and contested by the United Kingdom, namely the argument, set out in paragraph 32 above, according to which the contested amendments do not affect ‘only to a negligible extent the overall amount of the tax revenue collected by that Member State at the stage of the final consumption’, having regard to the alleged incorrect VAT treatment of commodity options in the United Kingdom.

That argument clearly relates to the substantive requirement laid down in the second subparagraph of Article 395(1) of Directive 2006/112, which limits the Member States’ right to apply derogations, even if notification of them was given before 1 January 1978 — as indicated at the end of Article 394 of that directive — whereas the form of order sought in the Commission's application concerns the procedural obligations arising from Article 395(2). Thus, by the present action, the Court is asked to determine only whether or not the United Kingdom failed to fulfil the latter obligations in so far as it did not notify the Commission of the contested amendments derogating from the common system of VAT, which were introduced after the notification of 28 December 1977, so that they could be authorised by the Council. It follows, as the United Kingdom has rightly pointed out, that, as the proceedings were brought under Article 395(2) of Directive 2006/112, the Court cannot rule in the present case on whether those measures do in fact satisfy the criterion relating to the effect on tax revenue laid down in the second subparagraph of paragraph 1 of that article. The argument based on that criterion is therefore irrelevant in the present case.

With regard to the other arguments put forward by the Commission, it should be noted, first, that it follows from the Court's settled case-law that the national derogations referred to in Article 27(1) to (5) of the Sixth VAT Directive (now Articles 394 and 395 of Directive 2006/112), which were allowed ‘in order to simplify the procedure for charging the tax or to prevent certain types of tax evasion or avoidance’, must be interpreted strictly and may not derogate from the basis for charging VAT usually applicable except within the limits strictly necessary for achieving that aim (see, inter alia, judgments of 29 April 2004, Sudholz, C-17/01, EU:C:2004:242, paragraphs 45 and 46; of 14 July 2005, British American Tobacco and Newman Shipping, C-435/03, EU:C:2005:464, paragraph 44; of 27 January 2011, Vandoorne, C-489/09, EU:C:2011:33, paragraph 27; and of 14 December 2017, Avon Cosmetics, C-305/16, EU:C:2017:970, paragraph 36).

Second, the Court has held that, with regard to the special measures for derogation referred to in Article 27(1) and (5) of the Sixth VAT Directive (now Article 395(1) and Article 394 of Directive 2006/112) intended to simplify the procedure for charging VAT without affecting, except to a negligible extent, the amount of tax due at the final consumption stage which were in force on 1 January 1977, the Member States were allowed to retain them provided that they notified the Commission of them before 1 January 1978 (see, to that effect, judgment of 13 February 1985, Direct Cosmetics, 5/84, EU:C:1985:71, paragraph 22).

Third, new derogations that a Member State wishes to introduce accord with EU law only if, in the first place, they are consistent with the aims referred to in Article 27(1) of the Sixth VAT Directive (now Article 395(1) of Directive 2006/112) and, in the second place, the Commission has been notified of them and they have then been authorised by the Council (see, to that effect, judgments of 13 February 1985, Direct Cosmetics, 5/84, EU:C:1985:71, paragraph 24, and of 9 June 2011, Campsa Estaciones de Servicio, C-285/10, EU:C:2011:381, paragraph 32).

Fourth, in the judgment of 13 February 1985, Direct Cosmetics (5/84, EU:C:1985:71, paragraphs 25 to 29), the Court held that a measure notified by a Member State before 1 January 1978 is deemed to have become ineffective from the moment at which the measure in question was replaced by a new national provision, ‘unless it is shown that the new provision may be regarded as being substantially the same as the previous provision’. After finding that the amendment at issue in that case was a ‘substantial change compared with the measure notified in 1977 because it omits the very element which linked that measure to the Sixth [VAT] Directive’, the Court noted that ‘only a notification effected in conformity with paragraph (2) of Article 27 [of that directive (now Article 395(2) of Directive 2006/112)] would have enabled the Commission and, where appropriate, the Council to verify whether the new measure was still consistent with the aim laid down in paragraph (1) of that Article’ despite the removal of the element concerned. Therefore, the Court held that where national provisions that have been notified in accordance with Article 27(5) of the Sixth VAT Directive (now Article 394 of Directive 2006/112) are the subject of such a substantial amendment, that amendment constitutes a new ‘special measure’ and the Commission must be notified of it.

In the present case, it is not in dispute that, on 28 December 1977, the United Kingdom notified the Commission of a measure intended to simplify the procedure for charging VAT under the derogation provided for in Article 27(5) of the Sixth VAT Directive (now Article 394 of Directive 2006/112) for measures of that type in force on 1 January 1977. According to the grounds set out in Annex V to the letter of notification, the notified measure, which had been established by the 1973 Order, as amended by the 1975 Order, specifically authorised ‘transactions on the eleven ‘futures’ markets [for trade in the commodities referred to in those orders,] involving defined market members [to be] traded free of VAT [through zero-rating] and of the recording requirements of VAT.’ After that notification, the United Kingdom adopted several provisions amending the content of the measure concerned, more particularly those mentioned in the Commission's reasoned opinion and referred to in paragraph 25 above, without sending an application to the Commission for authorisation by the Council under Article 27(2) of the Sixth VAT Directive (now Article 395(2) of Directive 2006/112).

The United Kingdom disputes the alleged failure to fulfil obligations, arguing, in essence, that it was not required to notify the Commission of the contested amendments under Article 395(2) of Directive 2006/112 as they were purely formal amendments which did not go beyond the purpose of the derogation that gave rise to the notification of 28 December 1977 and which, on the contrary, made it possible to ensure that the scope of that derogation remained the same, notwithstanding the development of the commodity markets and exchanges covered by that derogation.

By contrast, the Commission claims, in essence, that the notification of 28 December 1977 covers only the 11 markets and exchanges that benefited from zero-rating for VAT purposes and from an exception to the requirement to keep VAT records which were specifically referred to in the notification, namely the markets and exchanges listed in paragraph 2 of Article 2 of the 1973 Order, as amended by the 1975 Order, and that any addition to that list must be considered to be a substantial amendment giving rise to an obligation to give notification on the part of the United Kingdom.

In that regard, it should be noted that the approach advocated, correctly, by the Commission is consistent with the principles, referred to in paragraph 42 above, according to which national derogations referred to in Article 27(1) to (5) of the Sixth VAT Directive (now Articles 394 and 395 of Directive 2006/112) must be interpreted strictly and must be strictly proportionate to the aim of simplifying the charging of VAT.

In accordance with those principles, a particular regime which, in order to achieve that aim, derogates from the general rule laid down in Article 2(1) of Directive 2006/112 that VAT is to be levied on all goods or services supplied for consideration by a taxable person, cannot be extended to transactions which were excluded from that particular regime by the national legislator on the date on which that derogation was permitted under EU law and, more specifically, were not provided for when the Sixth VAT Directive came into force (see, by analogy, judgments of 19 September 2000, Ampafrance and Sanofi, C-177/99 and C-181/99, EU:C:2000:470, paragraphs 37 and 38, and of 6 July 2006, Talacre Beach Caravan Sales, C-251/05, EU:C:2006:451, paragraphs 22 and 23). It follows that, where a Member State adopts derogations in respect of transactions which do not fall within the scope of a particular regime that was the subject of a notification under Article 27(5) of the Sixth VAT Directive (now Article 394 of Directive 2006/112), that State is required to give notification of such new measures under Article 27(1) to (4) of the Sixth VAT Directive (now Article 395(1) to (4) of Directive 2006/112). That conclusion is all the more relevant in the case of markets covering types of transactions which did not exist at the time of such notification.

In addition, it should be noted that, as pointed out in paragraph 45 above, the Court has previously held that where national provisions in respect of which a Member State has given notification in accordance with Article 27(5) of the Sixth VAT Directive (now Article 394 of Directive 2006/112) have been substantially amended, the amendment constitutes a new ‘special measure’ notification of which must be given to the Commission by that Member State in accordance with Article 27(2) of the Sixth VAT Directive (now Article 395(2) of Directive 2006/112) (judgment of 13 February 1985, Direct Cosmetics, 5/84, EU:C:1985:71, paragraphs 28 and 29).

That obligation to give notification is also consistent with the requirements stemming from the principles of legal certainty and transparency, as it allows both the Commission and Member States other than the Member State that submitted the notification to verify, through an express decision adopted by the Council, how a Member State intends to make use of the power to derogate under Article 27(1) to (4) of the Sixth VAT Directive (now Article 395(1) to (4) of Directive 2006/112).

Furthermore, it cannot be sufficient, as the United Kingdom claims, that the national provisions which thus amended the measure notified under Article 27(5) of the Sixth VAT Directive (now Article 394 of Directive 2006/112) might pursue the same purpose as that measure, since only a notification given in accordance with Article 27(2) of the Sixth VAT Directive (now Article 395(2) of Directive 2006/112) is capable of enabling the Commission and the Council to verify whether the special measure as amended still achieves the aim laid down in Article 27(1) of the Sixth VAT Directive (now Article 395(1) of Directive 2006/112) and meets the other criteria necessary for the derogation provided for in that provision to apply (see, to that effect, judgment of 13 February 1985, Direct Cosmetics, 5/84, EU:C:1985:71, paragraph 28).

In the present case, it is apparent from the evidence before the Court that the contested amendments directly affected the scope of the derogation measures adopted by the United Kingdom in order to simplify the procedure for charging VAT, which was the subject of the notification of 28 December 1977, which referred to 11 explicitly identified markets and exchanges when it defined the scope of the measure notified. Those measures specifically covered transactions carried out on the 11 commodity futures markets listed in the 1973 Order, as amended by the 1975 Order, whereas the contested measures not only removed certain transactions covered by those measures — which had been specifically justified by the United Kingdom in Annex V to the letter of notification — but also added a series of transactions. That is the case, inter alia, where markets covering new types of transaction were added, such as, in particular, transactions involving trade in carbon emission allowances on the ‘ICE Futures’ market, referred to in paragraph 25 above. Such additions extend the scope of those derogation measures beyond the items separately identified by the United Kingdom and the specific justifications given in that regard in the notification.

It follows that the contested amendments consist of substantial amendments and, therefore, constitute new ‘special measures for derogation’ within the meaning of Article 27(1) to (4) of the Sixth Tax Directive (now Article 395(1) to (4) of Directive 2006/112), which means that the Commission should have been given notification of those amendments for authorisation by the Council in accordance with Article 27(2) of the Sixth Directive (now Article 395(2) of Directive 2006/112).

Lastly, it should be stated that the obligation to give notification at issue does not in any way prejudge whether or not the Council will adopt a positive position in any future decision it may issue, which means that the United Kingdom's line of argument in which it alleges that the markets and exchanges affected by the contested amendments will be prejudiced if they are not subject to zero-rating are ineffective.

In the light of all the above, it must be held that, by introducing new simplification measures that extended the application of the zero-rating and the exception to the normal requirement to keep VAT records which were provided for in the 1973 Order, as amended by the 1975 Order, without submitting an application to the Commission with a view to seeking the authorisation of the Council, the United Kingdom has failed to fulfil its obligations under Article 395(2) of Directive 2006/112.