ECJ VAT Cases MAY/JUNE 2007 - empcom.gov.in

Judgments
Judgment of 15 March 2007: Case C-35/05 Reemtsma
Cigarettenfabriken GmbH v. Ministero delle Finanze
Reemtsma Cigarettenfabriken GmbH (Reemtsma) was a
company established in Germany, which mainly carried
out its activities in that EU Member State. It had no fixed
establishment in Italy. In 1994, an Italian firm provided
advertising and marketing services to Reemtsma on
which it charged Italian VAT. For VAT purposes, those
services were, however, deemed to be provided in Germany
and subject to German VAT under the reverse
charge mechanism (payable to the German authorities
by Reemtsma through its periodic VAT return). Consequently,
the Italian VAT had been charged to Reemtsma
in error. Reemtsma applied for a refund of the Italian
VAT, which was refused by the Italian authorities.
In response to the questions of the Corte Suprema di Cassazione
(Court of Cassation, Italy) of whether or not the
German company could obtain a refund of the Italian
VAT charged to it in error by the supplier, the ECJ (Second
Chamber) declared on 15 March 2007 that:
“(1)Arts. 2 and 5 of Eighth Council Directive
79/1072/EEC of 6 December 1979 on the harmonization
of the laws of the Member States relating to
turnover taxes – Arrangements for the refund of
value added tax to taxable persons not established in
the territory of the country, must be interpreted as
meaning that value added tax that is not due and has
been invoiced in error to the beneficiary of the services
and paid to the tax authorities of the Member
State where those services were supplied, is not
refundable under those provisions.
(2) Except in the cases expressly provided for in Art.
21(1) of Sixth Council Directive 77/388/EEC of 17
May 1977 on the harmonization of the laws of the
Member States relating to turnover taxes – Common
system of value added tax: uniform basis of
assessment, as amended by Council Directive
92/111/EEC of 14 December 1992, only the supplier
must be considered to be liable for payment of value
added tax for the purposes of the tax authorities of
the Member State where the services were supplied.
(3) The principles of neutrality, effectiveness and nondiscrimination
do not preclude national legislation,
such as that at issue in the main proceedings, according
to which only the supplier may seek reimbursement
of the sums unduly paid as value added tax to
the tax authorities and the recipient of the services
may bring a civil law action against that supplier for
recovery of the sums paid but not due. However,
where reimbursement of the value added tax would
become impossible or excessively difficult, the
Member States must provide for the instruments
necessary to enable that recipient to recover the
unduly invoiced tax in order to respect the principle
of effectiveness.
ECJ VAT Cases
This ruling shall not be affected by national legislation
on direct taxation.”
Judgment of 29 March 2007: Case C-111/05
Aktiebolaget NN v. Skatteverket
Aktiebolaget NN was a company established in Sweden.
It was to supply and install a fibreglass cable, which was
to run from Sweden to another EU Member State
through international waters.
Under the provisions of the contract, the supplier owned
the cable at the time installation began. Ownership was
to be transferred to the customer after completion of
installation and a first trial run. The cable was to be
attached to, and dug-in into, the mainland of Sweden
and, subsequently, meter-by-meter installed at the bottom
of the sea, first in the territorial waters of Sweden,
subsequently in international waters and the territorial
waters of the other Member States, and finally dug into,
and attached to, the mainland of the other Member State.
In so far as the bottom of the sea permitted, the cable was
to be dug in. If necessary, the cable was to be extended
between the points of attachment, which was a technically
complex operation.
The risks of any problems arising in the framework of
installation, and of acquiring the necessary permits were
for the account of the customer, not the supplier. Under
normal conditions, the cost of the cable comprised 80%-
85% of the total cost. That percentage could decrease
under unfavourable weather conditions, e.g. storm.
In response to the questions of the Regeringsrätten of
whether or not the transaction constituted a supply of
goods or a service and, more specifically, a service connected
with immovable property, and whether or not it
must be split on the basis of the territorial positioning of
the cable and, if so, whether it was not subject to VAT on
that part of the supply relating to the area outside the
territory of the Community, the ECJ (Third Chamber)
declared on 29 March 2007 that:
“(1)A transaction for the supply and installation of a
fibre-optic cable linking two Member States and
sited in part outside Community territory must be
considered a supply of goods within the meaning of
Art. 5(1) of Sixth Council Directive 77/388/EEC of
17 May 1977 on the harmonization of the laws of the
Member States relating to turnover taxes – Common
system of value added tax: uniform basis of
assessment, as amended by Council Directive
2002/93/EC of 3 December 2002, where it is apparent
that, after functionality tests carried out by the
supplier, the cable will be transferred to the client
who will dispose of it as owner, that the price of the
cable itself clearly represents the greater part of the
total cost of that transaction, and that the supplier’s
services are limited to the laying of the cable without
altering its nature and without adapting it to the specific
requirements of the client.
© IBFD INTERNATIONAL VAT MONITOR MAY/JUNE 2007 221

ECJ VAT Cases
(2) Art. 8(1)(a) of Sixth Directive 77/388 must be interpreted
as meaning that the right to tax the supply
and laying of a fibre-optic cable linking two Member
States and sited in part outside the territory of the
Community is held by each Member State pro rata
according to the length of cable in its territory with
regard both to the price of the cable itself and the
rest of the materials and to the cost of the services
relating to the laying of the cable.
(3) Art. 8(1)(a) of Sixth Directive 77/388, read in conjunction
with Arts. 2(1) and 3 of that Directive, must
be interpreted as meaning that the supply and laying
of a fibre-optic cable linking two Member States is
not subject to VAT for that part of the transaction
which is carried out in the exclusive economic zone,
on the continental shelf and at sea.”
Judgment of 19 April 2007: Case C-455/05 Velvet &
Steel Immobilien und Handels GmbH v. Finanzamt
Hamburg-Eimsbüttel
In September 1998, Burmeister Immobilien GmbH sold
a plot of land with a rented apartment building. In July
1999, two individuals together undertook a similar
transaction. In the two sale contracts, the suppliers
undertook to carry out the renovation work needed on
the buildings concerned. The two individuals also
assumed a rent guarantee.
After the sales, the suppliers concluded, on 25 September
1998 and 12 July 1999 respectively, contracts with
Velvet & Steel entitled “assignment of a part of the purchase
price in return for assumption of obligations”. By
those contracts, Velvet & Steel assumed responsibility
for the suppliers’ obligation to renovate the buildings as
well as for the rent guarantee in return for a part of the
purchase price of those buildings. The two purchasers of
the buildings subsequently agreed to release Velvet &
Steel from its obligations in return for payment to them
of part of that fraction of the purchase price ceded to it.
The profit resulting from that transaction, with regard to
the contracts concluded with Burmeister and with the
two individuals concerned, remained with Velvet & Steel
as “payment or lump-sum compensation/indemnity in
respect of any loss of profit”. Velvet & Steel declared only
that profit as consideration for the services rendered, for
VAT purposes.
The tax administration took the view that the assumption
by Velvet & Steel of the obligation to renovate the
buildings was a service, which was subject to VAT. Velvet
& Steel appealed against that decision arguing that neither
of the two obligations which it had assumed had
actually been carried out.
In response to the question of the Finanzgericht Hamburg
(Germany) of whether the concept of the assumption
of obligations includes only pecuniary obligations
or also the assumption of other obligations, such as service
obligations, the ECJ (Third Chamber) declared on 19
April 2007 that:
“Art. 13(B)(d)(2) of Sixth Council Directive 77/388/EEC
of 17 May 1977 on the harmonization of the laws of the
Member States relating to turnover taxes – Common
system of value added tax: uniform basis of assessment
must be interpreted as meaning that the concept of
assumption of obligations excludes from the scope of
that provision obligations which are non-pecuniary,
such as the obligation to renovate a property.”
Court’s Orders
Court’s Order of 6 March 2007: Case C-168/06
Ceramika Paradyż sp. z oo v. Dyrektor Izby Skarbowej
w Łodzi
In its monthly VAT return for September 2003,
Ceramika Paradyż had reported the sale of a building for
a net price of PLN 168,578 and PLN 36,427 in VAT. Due
to a mistake in its VAT reporting system, the company
declared the same transaction again in its VAT return for
October 2003. After discovery of that mistake, the company
decreased the turnover reported in its VAT return
for November 2003 by PLN 168,578 and – as a result –
increased its excess input tax claim by PLN 36,427.
On discovery of the company’s mistake, the tax authorities
reversed its corrections and imposed an additional
tax liability of PLN 10,928 (30% of PLN 36,427). The tax
authorities did not deny that Ceramika Paradyż was
entitled to reclaim the amount paid through its return
for October but took the view that it should have corrected
its VAT return for October, not decreased its VAT
liability for November. Under the Polish VAT Law, the
30% additional tax liability is imposed on taxable persons
who have understated their output VAT liability or
overstated their input VAT claim in their VAT return.
For a description of the legal background of the case, see
the case note at pp. 227 of this issue.
Ceramika Paradyż disputed the imposition of the additional
tax liability and, in the course of the subsequent
proceedings before the Wojewódzki Sąd Administracyjny
(the Regional Administrative Court) in Łódź, that
regional court referred two questions to the ECJ on the
conformity of the national provision with Community
law.
Under Art. 104(3) of the ECJ’s Rules of Procedure, where
the answer to a question referred to the ECJ for a preliminary
ruling may be clearly deduced from existing case
law, the ECJ may, after hearing the Advocate General, at
any time give its decision by reasoned order in which
reference is made to its previous judgment or to the relevant
case law.
In this context, the ECJ observed that, according to the
order for reference, the national court wished to know
how the provisions of the First and Sixth Directives
must be interpreted for the purposes of its assessment of
whether or not the provision of national law under
which the additional tax liability is imposed is compatible
with Community law. In the case at hand, that liability
had been imposed by reason of an alleged incorrect
VAT return for a period (October 2003) prior to Poland’s
accession to the European Union (1 May 2004). Since
222 INTERNATIONAL VAT MONITOR MAY/JUNE 2007 © IBFD

the ECJ is solely competent to interpret Community law
applicable in a new Member State from the date of its
accession and regardless of whether the additional tax
liability constitutes a tax or a penalty, by its order of 6
March 2007, the ECJ declared that it was not competent
to answer the questions referred to it by the national
court.
[Unofficial translation]
Opinions
Opinion of 8 March 2007: Case C-434/05 Stichting
Regionaal Opleidingen Centrum Noord-
Kennemerland/West-Friesland (Horizon College) v.
Staatssecretaris van Financiën and C-445/05 Werner
Haderer v. Finanzamt Wilmersdorf
Case C-434/05
Stichting Regionaal Opleidingen Centrum Noord-Kennemerland/West
Friesland (Horizon College) was a
teaching establishment at Alkmaar in the Netherlands.
For the purposes of Art. 13(A)(1)(i) of the Sixth VAT
Directive, it was an organization defined by the Member
State as having educational objects. It principally provided
secondary level and vocational education, but also
seconded teachers to other establishments to meet temporary
shortages of teaching staff. Under the secondment
contract, the teacher was assigned work by the
other establishment, which also paid for liability insurance.
The teacher’s salary continued to be paid by Horizon
College, which claimed the bare cost back from the
other establishment, without taking any profit or charging
VAT.
Case C-445/05
Mr Haderer worked for a number of years for the Land
of Berlin as a teacher in a freelance capacity. In 1990, he
worked at various adult education centres for a total of
often more than 30 hours per week, providing “help with
schoolwork” and running a ceramics and pottery course.
His status was covered by regularly renewed contracts,
which expressly stipulated that they did not create an
employment relationship. Mr Haderer received an
hourly fee for work actually done. If a course was cancelled
for any reason, or if he was prevented from working
by sickness or any other cause, he was not entitled to
a fee. He did, however, receive a contribution to the costs
of his health insurance and pension scheme and a “leave
allowance” calculated as a percentage of his fees. Mr
Haderer did not file a VAT return in respect of his services.
On 8 March 2007, Advocate General Sharpston delivered
her opinion in cases C-434/05 and C-445/05. As
regards the question of whether or not the secondment,
for consideration, of a teacher by Horizon College to
another educational institution was exempt from VAT
under the exemption for educational services, she proposed
that the ECJ should answer the questions referred
to it by the Hoge Raad in Case C-434/05 as follows:
ECJ VAT Cases
“– On a proper construction of Art. 13(A)(1)(i) of Sixth
Council Directive 77/388/EEC, the temporary supply
of a teacher to an educational establishment, in
order to provide teaching services under the responsibility
of that establishment, does not constitute
provision of education or vocational training or
retraining, but does in principle constitute the supply
of a service closely related thereto.
– In order to qualify for exemption from VAT under
that provision, the supply in question must be made
by a body or organization as referred to therein, and
must comply with the requirements of Art.
13(A)(2)(b) of the same directive, as clarified by the
Court in its judgment in Case C-415/04 Stichting
Kinderopvang Enschede, and, where applicable, with
those of Art. 13(A)(2)(a).”
As regards the question of whether or not Mr Haderer’s
services were exempt from VAT, she proposed that the
ECJ should answer the questions referred to it by the
Bundesfinanzhof in Case C-445/05 as follows:
“– On a proper construction of Art. 13(A)(1)(j) of Directive
77/388, the concept of tuition given privately
by teachers does not include a situation in which a
self-employed teacher contracts with an educational
establishment to provide tuition to students in
courses organized by that establishment on its
premises and under its responsibility, for which the
establishment and not the teacher receives payment
from the students.”
Case note
In Horizon College, the basic question was whether or
not the secondment of teachers by and educational institution
to another educational institution was exempt
from VAT.
In her Opinion of 8 March 2007, Advocate General
Sharpston sighed that VAT is an unusual tax because,
unlike exemptions under other taxes, exemptions under
VAT may have an adverse effect on the taxable person
involved, in the sense that he is not entitled to deduct (as
input tax) any VAT charged to him by other suppliers of
goods and services purchased for the purpose of carrying
out the exempt transactions.
According to the Advocate General, the Sixth Directive
does not directly provide an answer to the question of
whether or not the secondment of teachers is exempt
from VAT. In this framework, she mentioned the legal
exemption for educational services, which she rejected
on the ground that the secondment of teachers is not the
provision of education, 1 and that for the services of private
tutors, 2 which she also rejected. Instead of examin-
1. Under Art. 13(A)(1)(i) of the Sixth Directive (Art. 132(1)(i) of Directive
2006/112), Member States must exempt children’s or young people’s education,
school or university education, vocational training or retraining, including
the supply of services and of goods closely related thereto, provided by bodies
governed by public law having such as their aim or by other organizations
defined by the Member States concerned as having similar objects.
2. Under Art. 13(A)(1)(j) of the Sixth Directive (Art. 132(1)(j) of Directive
2006/112), Member States must exempt tuition given privately by teachers
and covering school or university education.
© IBFD INTERNATIONAL VAT MONITOR MAY/JUNE 2007 223

ECJ VAT Cases
ing the relevance of the third exemption mentioned
under “legal background”, i.e. the exemption laid down
by Art. 13(A)(1)(k) of the Sixth Directive, she focused on
services “closely related to education”, which are exempt
under the exemption for educational services. 3
One of the basic principles of VAT is that all supplies
made by taxable persons are subject to VAT, unless the
legislation specifically provides otherwise and, if the
VAT legislation provides for an exemption, it must be
interpreted strictly because it is an exception to the rule
that all supplies are subject to VAT. Another basic principle
is that, unless the legislation specifically provides
otherwise, VAT exemptions and special regimes apply to
certain supplies of goods and services, regardless of the
status of the service provider, for example, the exemption
for insurance transactions may apply to supplies
made by an institution not authorized as an “insurance
company”, the exemption for financial services may
apply to institutions other than banks, the margin
scheme applicable to the services of travel agents may
apply to hotels, etc.
On the basis of those principles and following the Advocate
General’s plausible view that the secondment of
teachers is not the provision of education, the results are
as follows. Horizon College undoubtedly qualified as a
taxable person for VAT purposes, which means that, in
principle, all its supplies were subject to VAT. However,
its educational services were exempt from VAT. Secondment
of staff however could only be exempt if that
transaction is covered by another exemption.
Under the Sixth Directive, a specific exemption applied
to the secondment of staff. Under Art. 13(A)(1)(k), 4 certain
supplies of staff by religious or philosophical institutions
for the purpose of, inter alia, exempt educational
services and with a view to spiritual welfare, were
exempt from VAT. 5 That provision clearly implies that
other supplies (secondment) of staff cannot possibly be
exempt from VAT. It is undoubtedly true that the secondment
of staff by Horizon College was made for the
purposes of the educational services provided by the
hiring-in institutions but it cannot reasonably be maintained
that Horizon College was a religious or philosophical
institution and that the secondment of staff
took place with a view to spiritual welfare. Non-fulfilment
of those conditions should have led to the conclusion
that Horizon College’s secondment of staff was subject
to VAT.
Instead of drawing that straightforward conclusion, the
Advocate General examined whether or not Horizon
College’s secondment of staff could be exempt on the
ground that it is a supply of goods and services “closely
related” to the educational services rendered by Horizon
College. 6
Subsequently, the Advocate General examined the
restrictions applicable to the exemption for educational
services rendered by bodies other than those governed
by public law. Apart from the optional restrictions to be
set by the individual Member States7 , those restrictions
are that the exemption for, in this case, educational services
and closely related supplies does not apply to private
entities, firstly, where the supply of goods and service is
not essential to the exempt transactions8 and, secondly,
where its basic purpose is to obtain additional income9 for the organization by carrying out transactions which
are in direct competition with those of commercial
enterprises liable for VAT. Although it is obvious that, in
order to qualify as “closely related”, the supply must be
made by the person who makes the principal exempt
supply and that also the above restrictions must apply to
the “closely related” supplies made by the supplier of the
exempt educational services (Horizon College), the
Advocate General made the remarkable manoeuvre of
interpreting the concept of closely related supplies and
the first restriction as applying to the transactions carried
out by Horizon College’s customers. 10 In other
words, Horizon College is supposed to determine
whether or not its supply (secondment of staff) is
exempt from VAT on the basis of an assessment of
whether or not that secondment is essential to its customers’
educational services. It is logical that Horizon
College took that view because it had no other plausible
arguments in support of its claim that the secondment of
staff was exempt from VAT but it is, to say the least,
remarkable that the Commission supported it.
If the new11 policy becomes that taxable persons must
apply exemptions on the basis of criteria that are beyond
their horizon, VAT has truly become a highly complex
tax.
3. See note 1, phrase highlighted in italics. The “closely related” supplies
include, for example, provision of educational materials or field trips, for consideration.
4. Art. 132(1)(k) of Directive 2006/112.
5. That exemption continues to apply under Art. 132(1)(k) of Directive
2006/112.
6. The expression “thereto” in “closely related thereto” clearly refers to the
service provider’s exempt educational services.
7. Those conditions are laid down by Art. 13(A)(2)(a) of the Sixth Directive
(Art. 133 of Directive 2006/112) and include non-profit-making aims,
voluntary management, approved maximum prices, and not resulting in distortion
of competition.
8. It is highly doubtful that it can reasonably be maintained that the
secondment of teachers by Horizon College was essential to its educational
services.
9. The relationship between that restriction (see Art. 134(b)) and
Art. 13(A)(1)(o) of the Sixth Directive (Art. 132(1)(o) of Directive 2006/112),
which provides for a separate exemption for fund-raising events organized by
institutions, including educational institutions whose supplies are covered by
specific exemptions, is not entirely clear.
10. The Advocate General noted that, if students are receiving education or
vocational training from an educational institution, and that institution suffers
a temporary shortage of qualified teachers or instructors, then the benefit
of the education or training received will be greatly enhanced by the secondment
of qualified staff from another such institution. It is true that that view is
obviously correct, as a matter of common sense, but it is equally obvious that
the benefit derived by the customer from a certain supply has nothing to do
with the relationship between that supply and the supplier’s other supplies.
11. That policy would not be entirely new because in its judgment of 9 February
2006 in Stichting Kinderopvang Enschede v. Staatssecretaris van Financiën,
Case C-415/04, [2006] ECR I-1385, the ECJ followed a similar approach.
Regardless of the results, that line of reasoning should not have been adopted.
224 INTERNATIONAL VAT MONITOR MAY/JUNE 2007 © IBFD

In addition, educational institutions hiring out teachers
can easily manipulate the applicable VAT regime:
depending on the tax regime applicable to their customers’
services, the hiring-out institutions will claim
that the secondment is or is not essential to their customers’
educational services. That claim cannot possibly
be verified on the basis of objective evidence held by the
hiring-out institution.
Finally, the Advocate General’s approach throws a peculiar
light on the statement made by the Commission a
couple of years ago in order to justify its intention to
“modernize” the exemptions for social, educational, cultural
and other activities. 12 If the adverse consequences
of the outsourcing of activities and hiring-in of staff by
institutions engaged in those exempt transactions are to
be mitigated by a broad and flexible interpretation of the
existing exemptions, the “modernization” of the VAT legislation
has become an autonomous and continuous
process beyond the control of the European legislature.
The Advocate General’s line of reasoning does not
directly lead to a conclusion as regards the VAT regime
applicable to the secondment of teachers by Horizon
College. In order for the exemption to apply, several
other hurdles must be taken: firstly, Horizon College’s
customers must use the hired-in teachers for the purpose
of providing education within the meaning of Art.
13(A)(1)(i); secondly, the supply of staff must be essential
to the exempt transactions, i.e. it must be of such a
nature or quality that the customers could not be
assured of obtaining a service of the same value without
the secondment of teaching staff from Horizon College;
thirdly, the basic purpose must not be to obtain additional
income, which includes reduction of Horizon
College’s loss arising from the situation that it would
have to pay the seconded teachers’ salary without having
sufficient employment for them; fourthly, Horizon College
must comply with the conditions the Member States
are entitled to impose under Art. 13(A)(2)(a) 13 of the
Sixth Directive; and finally, Horizon College must have
the status of a body or organization referred to in Art.
13(A)(1)(i) of that Directive. It must reasonably be
assumed that, in particular the second and third conditions,
as formulated by the Advocate General, are prohibitive
for application of the exemption.
Walter van der Corput
Opinion of 19 April 2007: Case C-73/06 Planzer
Luxembourg Sàrl v. Bundeszentralamt für Steuern
The transport company Planzer Luxembourg Sàrl
(Planzer) had its seat in Luxembourg. Its sole shareholder
was Planzer Transport AG, which had its seat in
Switzerland.
At the place where Planzer Luxembourg had its seat, Mr
Deltgen ran the company Helvetica House from which
Planzer had rented office space. As representative of its
sole shareholder, Mr Deltgen had assumed the task of
undertaking whatever was necessary to establish Planzer
Luxembourg. The managers of Planzer Luxembourg
were two employees of Planzer Transport AG. One of
ECJ VAT Cases
them was resident in Switzerland and the other in Italy.
Thirteen other businesses, three of which were subsidiaries
of Swiss transport companies, had their address
at Planzer Luxembourg.
Planzer requested a VAT refund from the German tax
authorities for VAT paid on fuel purchased in Germany.
When filing the refund request, Planzer attached a certificate
based on Annex B to the Eighth Directive
(79/1072/EEC), which stated that Planzer was subject to
VAT in Luxembourg and had a Luxembourg VAT identification
number.
On the ground that Planzer did not have a telephone
connection at its address in Luxembourg, the German
authorities refused to grant the refund arguing that
Planzer was established not in Luxembourg, but outside
the European Union.
As regards the questions of whether or not a certificate
based on Annex B to the Eighth Directive constituted an
irrefutable assumption that the taxable person was
established in the Member State issuing the certificate,
and if not, whether the term “business” refers to the place
where the company has its registered office or where
management decisions or decisions vital to normal
every-day operations are taken, Advocate General Verica
Trstenjak delivered her opinion on 19 April 2007. She
proposed that the ECJ should answer the questions
referred to it by the Finanzgericht Köln (Germany) as follows:
(1) An undertaking’s certificate drawn up in accordance
with the specimen form in Annex B to the Eighth
Council Directive 79/1072/EEC of 6 December
1979, merely indicates that an undertaking is subject
to VAT and, therefore, does not create an irrefutable
assumption that the undertaking is established in
the state that issued the certificate.
(2) The term “business” in Art. 1(1) of the Thirteenth
Directive is identical to that used to determine the
place of supply of services and, in view of the ECJ’s
case law on the taxable person’s place of business and
fixed establishment, must be construed as meaning
the place where the undertaking’s economic activity
is actually carried out and is characterized by a combination
of human and technical resources necessary
for the purpose of carrying out that activity
independently. In view of possible schemes set up
for the purpose of manipulating the tax regime, she
added that, unless proven otherwise, that place is the
undertaking’s statutory seat.
[Unofficial translation]
12. Communication from the Commission to the Council and the European
Parliament: A strategy to improve the operation of the VAT system
within the context of the internal market, COM(2000) 348 final, Annex,
point 2.1.
13. See Art. 133 of Directive 2006/112.
© IBFD INTERNATIONAL VAT MONITOR MAY/JUNE 2007 225

ECJ VAT Cases
Opinion of 29 March 2007: Case C-97/06 Navicon SA
v. Administración del Estado
Navicon and the company Compañía Transatlántica
Española SA had entered into a partial chartering agreement
under which the former provided the latter, against
payment of a sum, with part of the space on its vessels to
transport containers between various ports on the Iberian
peninsula and a place outside the EU VAT territory
(the Canary Islands).
Navicon had not charged VAT to its customer reasoning
that the transaction was zero rated or, in the terminology
of the Sixth Directive, exempt from VAT with the right
to deduct input tax. The Spanish tax authorities had not
accepted the zero rate because, under Spanish law, only
full chartering, not partial chartering, is zero rated.
As regards the Tribunal Superior de Justicia de Madrid
(Spain) questions of whether the term “chartering” in
Art. 15(5) of the Sixth Directive must be interpreted as
covering only chartering of the entire capacity of a vessel
(full chartering) or also includes chartering of a part or
percentage of a vessel’s capacity (partial chartering), and
whether or not the Sixth Directive precludes that only
full chartering is zero rated under national law, Advocate
General Mazák delivered his opinion on 29 March 2007.
He proposed that the ECJ should answer the questions
referred to it as follows:
“(1)The term ‘chartering’ in the exemption provided for
in Art. 15(5) of Sixth Council Directive 77/388/EEC
of 17 May 1977 on the harmonization of the laws of
the Member States relating to turnover taxes – Common
system of value added tax: uniform basis of
assessment, as amended by Council Directive
92/111/EEC of 14 December 1992, is to be interpreted
as including both chartering of the entire
capacity of the vessel (full chartering) and chartering
relating to a part or percentage of the vessel’s capacity
(partial chartering).
(2) The Sixth Directive precludes a national law which
allows exemption only for full chartering.”
President’s Orders
President’s Order of 23 March 2007: C-368/06
Cedilac SA v. Ministère de l’Économie, des Finances et
de l’Industrie
In the course of the proceeding between Cedilac SA and
the French Ministry of Economy, Finance and Industry,
the Administrative Court Lyon had referred preliminary
questions to the ECJ on the interpretation of the Arts. 17
and 18(4) of the Sixth Directive as regards Cedilac’s
claim for damages from the French state on the ground
that the national provisions accompanying the repeal of
the one-month delay rule for refunds of VAT were compatible
with Community law.
By its request of 26 February 2007, a third party, the
company SAS Fromagerie des Chaumes, requested to be
admitted to the proceedings as intervener for the purpose
of submitting its observations as regards the conformity
of the disputed French provisions with
Community law. In that framework, the third party
claimed that it was in the same position as Cedilac and,
just like the latter company, that it had started an action
for damages before the Administrative Court Pau. That
court had also raised questions on the interpretation of
Community law identical to those that were the subject
of the present case. However, that court had observed
that, in view of the fact that the case of Cedilac was
pending before the ECJ, referral of prejudicial questions
to the ECJ was not necessary.
As regards Fromagerie des Chaumes’ request, the President
of the ECJ observed that it is settled ECJ case law
that the procedure to join the proceedings in the case of
preliminary questions, is governed by Art. 23(1) and (2)
of the Statute of the ECJ, which provides that the right to
submit observations is limited to “the parties”, the Member
States and the Commission, as well as, where appropriate,
the Council, the European Parliament and the
European Central Bank. In that context, the expression
“parties” only refers to those that have that status in the
proceedings before the national court. Consequently,
persons who have not requested to be admitted to the
proceedings before the national court and have not been
admitted to those proceedings are not entitled to submit
their observations to the ECJ.
On those grounds, by its order of 23 March 2007, the
President of the ECJ declared Fromagerie des Chaumes’
request inadmissible.
[Unofficial translation]
New Cases
Preliminary ruling: Case C-25/07 Alicja Sosnowska v.
Izba Skarbowa we Wrocławiu Ośrodek Zamiejscowy w
Wałbrzychu
Reference has been made to the Court of Justice of the
European Communities by order of the Wojewódzki Sąd
Administracyjny we Wrocławiu (Poland) of 25 January
2007, for a preliminary ruling on the following questions:
“(1)Does the third paragraph of Art. 5 EC, in conjunction
with Art. 2 of First Council Directive
67/227/EEC 14 of 11 April 1967 on the harmonization
of legislation of Member States concerning
turnover taxes and Art. 18(4) of Sixth Council Directive
77/388/EEC of 17 May 1977 on the harmonization
of the laws of the Member States relating to
turnover taxes – Common system of value added
tax: uniform basis of assessment, confer on a Member
State the right to incorporate into national provisions
on the tax on goods and services the rules
laid down in Arts. 97(5) and (7) of the Ustawa o
podatku od towarów i usług (Law on the tax on goods
and services) of 11 March 2004 …?
14. OJ L 71, 1967, p. 1301.
226 INTERNATIONAL VAT MONITOR MAY/JUNE 2007 © IBFD

(2) Do the rules laid down in Arts. 97(5) and (7) of the
Ustawa o podatku od towarów i usług of 11 March
2004 … constitute special measures to prevent certain
types of tax evasion and avoidance within the
meaning of Art. 27(1) of the Sixth Directive?”
Case note
Under Art. 97(1) of the VAT Law, 15 taxable persons are
obliged to inform the tax authorities about their intent
to make intra-Community supplies or effect intra-
Community acquisitions of goods, no later than the day
before those events occur for the first time.
Under Art. 97(5) of the VAT Law, taxable persons who
commence their business activities in the framework of
which they carry out transactions subject to VAT, and
those who have commenced those activities less than 12
months before providing the information required
under Art. 97(1), are generally entitled to a refund of
excess input tax within 180 days from the date of filing
the VAT return. Other taxable persons are generally entitled
to a refund within a period of 60 days (Art. 87(2) of
the VAT Law). The extended refund period set by Art.
97(5) does, however, not apply where the taxable person
has made a deposit (kaucja) of an amount of PLN
250,000 (EUR 65,000) with the tax authorities (Art.
97(7) of the VAT Law). That deposit may take the form
of either a financial security (zabezpieczenie majątkowe)
or bank guarantee (gwarancja bankowa). Taxable persons
may apply to the tax authorities for release of the
deposit after 12 months, on the condition that they have
filed their VAT returns on a timely basis and remitted
the VAT due, as well as other taxes payable to the state.
Under Art. 87(5) of the VAT Law, on reasoned application,
taxable persons who supply goods destined to leave
the Polish territory, or supply goods or services outside
Poland, and do not carry out any transactions subject to
Polish VAT, are entitled to a refund of input tax within 60
days from the date of filing the return. Depending on the
circumstances, the tax authorities must repay the input
tax within 25 or 60 days, if the input tax shown on the
VAT return relates to, inter alia, intra-Community supplies
of goods (Art. 87(6) of the VAT Law).
Alicja Sosnowska (trading as Cztery Pory Roku) had
been running a business since 31 September 2005. On
22 February 2006, this taxable person filed a VAT return
for January 2006, which included intra-Community
supplies of goods with a value of PLN 261,427 and
acquisitions with a value of PLN 57,897. The VAT return
resulted in a net claim of PLN 44,782, which, according
to the taxable person, was to be refunded within 60 days.
In that respect, the taxable person relied on, inter alia,
Art. 18(4) of the Sixth Directive, 16 as well as the provisions
of the Constitution. 17
By their decision of 21 April 2006, the tax authorities
refused to repay the input VAT within the 60-day period
on the ground that the applicant had not made the
required deposit.
ECJ VAT Cases
On appeal before the Director of the Izba Skarbowa
(regional tax office) in Wrocław, the taxable person
claimed that the tax authorities’ refusal to repay the VAT
within 60 days was in violation of Arts. 2 (principle of
democracy) and 32 (principles of equality and proportionality)
of the Constitution, Art. 87(5) and (6) of the
VAT Law, and Art. 18(4) of the Sixth Directive. Furthermore,
the taxable person contested that the Polish
refund procedure discriminated against start-up businesses,
limiting their chances of survival in a competitive
market.
The Director upheld the initial decision of the tax
authorities contending that, under Art. 97(5) of the VAT
Law, the refund was to be made within a 180-day period.
Furthermore, since they do not provide for a maximum
refund period, the provisions of the Sixth Directive
could not possibly have been violated. He also pointed
out that the refund application had not been rejected
and, therefore, the principle of VAT’s neutrality had not
been infringed.
In the course of the subsequent proceedings, the
Wojewódzki Sąd Administracyjny (regional administrative
court) in Wrocław referred preliminary questions to
the ECJ on 25 January 2007. 18 The national court asked
the ECJ whether or not the third paragraph of Art. 5 EC,
in conjunction with Art. 2 of the First and Art. 18(4) of
the Sixth Directives, confer on a Member State the right
to incorporate into its national legislation the rules laid
down by Art. 97(5) and (7) of the VAT Law. The court
also asked the ECJ whether or not the rules laid down by
Art. 97(5) and (7) of the VAT Law constitute a special
measure aimed at preventing certain types of tax evasion
and avoidance within the meaning of Art. 27(1) of the
Sixth Directive. 19
Adam Biegalski, University of Warmia and Mazury,
Olsztyn, and Krzysztof Lasiński-Sulecki
Nicholas Copernicus University, Toruń.
Preliminary ruling: Cases C-95/07 and C-96/07
Ecotrade SpA v. Agenzia Entrate Ufficio Genova 3
Reference has been made to the Court of Justice by
orders of the Commissione Tributaria Provinciale di Ge-
15. Ustawa z dnia 11 marca 2004 r. o podatku od towarów i usług, Journal of
Laws 2004, No. 54, item 535, as amended.
16. With effect from 1 January 2007, Art. 18(4) of the Sixth Directive has
been replaced by Art. 183 of Directive 2006/112/EC of 28 November 2006, OJ
L 347 of 11 December 2006.
17. Konstytucja Rzeczypospolitej Polskiej z dnia 2 kwietnia 1997 r., Journal of
Laws 1997, No. 78, item 483, as amended.
18. Reference for a preliminary ruling in Alicja Sosnowska v. Dyrektor Izby
Skarbowej we Wrocławiu – Ośrodek Zamiejscowy w Wałbrzychu, Case C-25/07.
19. Art. 27(1) of the Sixth Directive, which corresponded to Art. 395(1) of
Directive 2006/112, provided that the Council, acting unanimously on a proposal
from the Commission, may authorize any Member State to introduce
special measures for derogation from the provisions of this Directive, in order
to simplify the procedure for charging the tax or to prevent certain types of
tax evasion or avoidance. Measures intended to simplify the procedure for
charging the tax, except to a negligible extent, may not affect the overall
amount of the tax revenue of the Member State collected at the stage of final
consumption.
© IBFD INTERNATIONAL VAT MONITOR MAY/JUNE 2007 227

ECJ VAT Cases
nova (Italy) of 20 February 2007, for preliminary rulings
on the following questions:
“Does a correct interpretation of Arts. 17, 21(1) and 22
of the Sixth Council Directive 77/388/EEC of 17 May
1977 on the harmonization of the laws of the Member
States relating to turnover taxes preclude national legislation
(in particular Art. 19 of DPR 633 of 26/10/72) that
makes the exercise of the right to deduct value added tax,
payable by a taxable person in the pursuit of his business
activities, dependent on compliance with a (two-year)
time limit and penalizes non-compliance with annulment
of that right? That question is asked with reference,
in particular, to cases where the liability to VAT on the
purchase of the goods or service stems from the application
of the reverse charge procedure, which allows the
authorities a longer period (of four years under Art. 57
of DPR 633/72) in which to demand payment of the
duty than the period allowed to the trader for deduction
of the duty, on expiry of which the trader’s right to such
deduction lapses.
Does it follow from a correct interpretation of Art.
18(1)(d) of the Sixth Council Directive 77/388/EEC of
17 May 1977 that national legislation may not, in regulating
the ‘formalities’ referred to in that provision by
means of the reverse charge procedure governed by the
combined provisions of Arts. 17(3), 23 and 25 of DPR
633/72, make (solely to the detriment of the taxpayer)
the exercise of the right to deduct permitted by Art. 17 of
the Directive conditional upon compliance with a time
limit such as that laid down in Art. 19 of DPR 633/72?”
Preliminary ruling: Case C-98/07 Nordania Finans
A/S and BG Factoring A/S v. Skatteministeriet
Reference has been made to the Court of Justice of the
European Communities by order of the Højesteret (Denmark)
of 22 February 2007, for a preliminary ruling on
the following question:
“Is the expression ‘capital goods used by the taxable person
for the purposes of his business’ contained in Art.
19(2) of Sixth Council Directive 77/388/EEC of 17 May
1977 on the harmonization of the laws of the Member
States relating to turnover taxes – Common system of
value added tax: uniform basis of assessment, to be interpreted
as covering goods which a leasing undertaking
purchases with a view both to leasing and resale upon
termination of the leasing contract?”
Preliminary ruling: Case C-124/07 J.C.M. Beheer B.V.
v. Staatssecretaris van Financiën
Reference has been made to the Court of Justice of the
European Communities by order of the Hoge Raad der
Nederlanden of 2 March 2007, for a preliminary ruling
on the following question:
“Do the provisions of Art. 13(B)(a) of the Sixth Directive
extend to activities of a (legal) person which performs
characteristic and essential activities of an insurance
broker and insurance agent, whereby negotiations are
carried out in the name of another insurance broker or
insurance agent in connection with the bringing about
of insurance transactions?”
Removals
Removal: Case C-42/05 Belgium State v. Ring
Occasions SA, in liquidation, Fortis Bank SA
By order of 14 September 2006, the President of the
Court of Justice of the European Communities has
ordered the removal from the register of Case C-42/05
Belgium State v. Ring Occasions SA, in liquidation, Fortis
Bank SA.
Removal: Case C-118/06 Diagram APS Applicazioni
Prodotti Software v. Agenzia Entrate Ufficio Roma 6
By order of 29 November 2006, the President of the
Court of Justice of the European Communities has
ordered the removal from the register of Case C-118/06:
Diagram APS Applicazioni Prodotti Software v. Agenzia
Entrate Ufficio Roma 6.
228 INTERNATIONAL VAT MONITOR MAY/JUNE 2007 © IBFD