(Failure of a Member State to fulfil obligations – Articles 17 and 18 of the Sixth VAT Directive – Provision of national law under which an employer may deduct VAT on supplies of fuel to his employees when reimbursing their fuel costs)

Opinion of Advocate General Stix-Hackl delivered on 14 December 2004

Judgment of the Court (First Chamber), 10 March 2005

Summary of the Judgment

Tax provisions – Harmonisation of laws – Turnover taxes – Common system of value added tax – Deduction of input tax – National legislation allowing an employer to deduct the tax on supplies of fuel to his employees – Fuel not used solely for business purposes – Not permissible

(Council Directive 77/388, Arts 17(2)(a) and 18(1)(a))

By granting taxable persons, in this case employers, the right to deduct value added tax on certain supplies of fuel to non-taxable persons, in conditions that do not ensure that the tax deducted attaches solely to fuel used for the purposes of the taxable person’s taxable transactions, a Member State fails to fulfil its obligations under Articles 17(2)(a) and 18(1)(a) of Sixth Directive 77/388 on the harmonisation of the laws of the Member States relating to turnover taxes.

(see paras 18, 26, 31 and operative part)

JUDGMENT OF THE COURT (First Chamber) 10 March 2005 (1)

(Failure of a Member State to fulfil its obligations – Articles 17 and 18 of the Sixth VAT Directive – Provision of national law under which an employer may deduct VAT on supplies of fuel to his employees when reimbursing their fuel costs)

In Case C-33/03, ACTION under Article 226 EC for failure to fulfil obligations, brought before the Court on 28 January 2003,

Commission of the European Communities, represented by R. Lyal, acting as Agent, with an address for service in Luxembourg,

applicant,

United Kingdom of Great Britain and Northern Ireland, represented by P. Ormond and C. Jackson, acting as Agents, assisted by N. Pleming QC, with an address for service in Luxembourg,

defendant,

THE COURT (First Chamber),

composed of P. Jann, President of the Chamber, K. Lenaerts (Rapporteur), N. Colneric, K. Schiemann and E. Juhász, Judges,

Advocate General: C. Stix-Hackl, Registrar: M.-F. Contet, Principal Administrator,

having regard to the written procedure and further to the hearing on 11 November 2004,

after hearing the Opinion of the Advocate General at the sitting on 14 December 2004,

gives the following

1 This request for a preliminary ruling concerns the interpretation of Directive 2011/92/EU of the European Parliament and of the Council of 13 December 2011 on the assessment of the effects of certain public and private projects on the environment (OJ 2012 L 26, p. 1), as amended by Directive 2014/52/EU of the European Parliament and of the Council of 16 April 2014 (OJ 2014 L 124, p. 1) (‘Directive 2011/92’).

2 The request has been made in proceedings between, on the one hand, Waltham Abbey Residents Association and, on the other hand, An Bord Pleanála (Planning Board, Ireland; ‘the Board’), Ireland and the Attorney General (Ireland), concerning authorisation granted by the Board for a strategic residential housing development.

Legal context

European Union law

Directive 2011/92

Recitals 7 to 9 of Directive 2011/92 state:

‘(7) Development consent for public and private projects which are likely to have significant effects on the environment should be granted only after an assessment of the likely significant environmental effects of those projects has been carried out. …

(8) Projects belonging to certain types have significant effects on the environment and those projects should, as a rule, be subject to a systematic assessment.

(9) Projects of other types may not have significant effects on the environment in every case and those projects should be assessed where the Member States consider that they are likely to have significant effects on the environment.’

4 Article 2(1) of that directive provides:

‘Member States shall adopt all measures necessary to ensure that, before development consent is given, projects likely to have significant effects on the environment by virtue, inter alia, of their nature, size or location are made subject to a requirement for development consent and an assessment with regard to their effects on the environment. Those projects are defined in Article 4.’

Under Article 3(1) of that directive:

‘The environmental impact assessment shall identify, describe and assess in an appropriate manner, in the light of each individual case, the direct and indirect significant effects of a project on the following factors:

…

(b) biodiversity, with particular attention to species and habitats protected under [Council Directive 92/43/EEC of 21 May 1992 on the conservation of natural habitats and of wild fauna and flora (OJ 1992 L 206, p. 7), as amended by Council Directive 2013/17/EU of 13 May 2013 (OJ 2013 L 158, p. 193) (“Directive 92/43”)] and Directive 2009/147/EC [of the European Parliament and of the Council of 30 November 2009 on the conservation of wild birds (OJ 2010 L 20, p. 7)];

…’

Article 4 of Directive 2011/92 provides:

‘1. Subject to Article 2(4), projects listed in Annex I shall be made subject to an assessment in accordance with Articles 5 to 10.

(a) a case-by-case examination;

(b) thresholds or criteria set by the Member State.

Member States may decide to apply both procedures referred to in points (a) and (b).

Where a case-by-case examination is carried out or thresholds or criteria are set for the purpose of paragraph 2, the relevant selection criteria set out in Annex III shall be taken into account. Member States may set thresholds or criteria to determine when projects need not undergo either the determination under paragraphs 4 and 5 or an environmental impact assessment, and/or thresholds or criteria to determine when projects shall in any case be made subject to an environmental impact assessment without undergoing a determination set out under paragraphs 4 and 5.

Where Member States decide to require a determination for projects listed in Annex II, the developer shall provide information on the characteristics of the project and its likely significant effects on the environment. The detailed list of information to be provided is specified in Annex IIA. The developer shall take into account, where relevant, the available results of other relevant assessments of the effects on the environment carried out pursuant to Union legislation other than this Directive. The developer may also provide a description of any features of the project and/or measures envisaged to avoid or prevent what might otherwise have been significant adverse effects on the environment.

The competent authority shall make its determination, on the basis of the information provided by the developer in accordance with paragraph 4 taking into account, where relevant, the results of preliminary verifications or assessments of the effects on the environment carried out pursuant to Union legislation other than this Directive. The determination shall made available to the public and:

(a) where it is decided that an environmental impact assessment is required, state the main reasons for requiring such assessment with reference to the relevant criteria listed in Annex III; or

(b) where it is decided that an environmental impact assessment is not required, state the main reasons for not requiring such assessment with reference to the relevant criteria listed in Annex III, and, where proposed by the developer, state any features of the project and/or measures envisaged to avoid or prevent what might otherwise have been significant adverse effects on the environment.

Member States shall ensure that the competent authority makes its determination as soon as possible and within a period of time not exceeding 90 days from the date on which the developer has submitted all the information required pursuant to paragraph 4. In exceptional cases, for instance relating to the nature, complexity, location or size of the project, the competent authority may extend that deadline to make its determination; in that event, the competent authority shall inform the developer in writing of the reasons justifying the extension and of the date when its determination is expected.’

Annex II.A of that directive contains the list of ‘information to be provided by the developer on the projects listed in Annex II’. That list reads as follows:

‘1. A description of the project, including in particular:

(a) a description of the physical characteristics of the whole project and, where relevant, of demolition works;

(b) a description of the location of the project, with particular regard to the environmental sensitivity of geographical areas likely to be affected.

(a) the expected residues and emissions and the production of waste, where relevant;

(b) the use of natural resources, in particular soil, land, water and biodiversity.

4. The criteria of Annex III shall be taken into account, where relevant, when compiling the information in accordance with points 1 to 3.’

Annex III to that directive sets out the ‘criteria to determine whether the projects listed in Annex II should be subject to an environmental impact assessment’.

Directive 2014/52

Recitals 11 and 29 of Directive 2014/52 state:

‘(11) The measures taken to avoid, prevent, reduce and, if possible, offset significant adverse effects on the environment, in particular on species and habitats protected under [Directive 92/43] and Directive 2009/147 …, should contribute to avoiding any deterioration in the quality of the environment and any net loss of biodiversity, in accordance with the [European] Union’s commitments in the context of the [United Nations Convention on Biological Diversity, signed in Rio de Janeiro on 5 June 1992,] and the objectives and actions of the Union Biodiversity Strategy up to 2020 laid down in the [Communication from the Commission to the European Parliament, the Council, the Economic and Social Committee and the Committee of the Regions] of 3 May 2011 entitled ‘Our life insurance, our natural capital: an EU biodiversity strategy to 2020’ [(COM(2011) 244 final)]

…

(29) When determining whether significant effects on the environment are likely to be caused by a project, the competent authorities should identify the most relevant criteria to be considered and should take into account information that could be available following other assessments required by Union legislation in order to apply the screening procedure effectively and transparently. In this regard, it is appropriate to specify the content of the screening determination, in particular where no environmental impact assessment is required. Moreover, taking into account unsolicited comments that might have been received from other sources, such as members of the public or public authorities, even though no formal consultation is required at the screening stage, constitutes good administrative practice.’

Directive 92/43

Article 6(3) of Directive 92/43 provides:

‘Any plan or project not directly connected with or necessary to the management of the site but likely to have a significant effect thereon, either individually or in combination with other plans or projects, shall be subject to appropriate assessment of its implications for the site in view of the site’s conservation objectives. In the light of the conclusions of the assessment of the implications for the site and subject to the provisions of paragraph 4, the competent national authorities shall agree to the plan or project only after having ascertained that it will not adversely affect the integrity of the site concerned and, if appropriate, after having obtained the opinion of the general public.’

Article 12(1) of that directive provides:

‘Member States shall take the requisite measures to establish a system of strict protection for the animal species listed in Annex IV(a) in their natural range, prohibiting:

(a) all forms of deliberate capture or killing of specimens of these species in the wild;

(b) deliberate disturbance of these species, particularly during the period of breeding, rearing, hibernation and migration;

(c) deliberate destruction or taking of eggs from the wild;

(d) deterioration or destruction of breeding sites or resting places.’

Point (a) of Annex IV to that directive mentions ‘all species’ of bats belonging to the suborder of ‘microchiroptera’.

Irish law

[1995] ECR I-1883, paragraph 35, and Case C-388/98 Commission v Netherlands [2001] ECR I-8265, paragraph 43).

Finally, Article 17(2)(a) of the Sixth Directive makes it clear that a taxable person is authorised to deduct VAT due or payable in respect of goods and services supplied to him by another taxable person in so far as those goods and services are used for the purposes of his taxable transactions.

Now, in the instant case, articles 2 and 3 of the U.K. Order enable a taxable person, viz., the employer, to deduct VAT on the fuel supplied to non-taxable persons, viz., employees, when the employer reimburses them the cost of the fuel.

It is true that, as the United Kingdom Government stresses, in carrying out their work employees generally act on behalf of their employer. In its view, therefore, there must exist a right for the employer to deduct VAT in respect of the fuel bought by the employee for the purposes of the employer’s taxable transactions.

Nevertheless, it must be held that the U.K. Order does not make the right to deduction which it confers subject to the condition that the fuel bought by the non-taxable person should be used for the purposes of the taxable person’s taxable transactions. Indeed, neither the U.K. Order nor the explanatory note imposes as a condition for eligibility for deduction of VAT that the fuel bought by the employee should be used for the purposes of the employer’s taxable transactions. On the contrary, articles 2(b)(i) and 3 of that order, read in conjunction, allow the employer to deduct VAT on the amount of fuel reimbursed to the employee computed by reference to the total distance travelled by the employee’s vehicle ‘whether or not including distances travelled otherwise than for the purposes of the business of the taxable person’.

In answer to a written question asked by the Court, the United Kingdom Government expressly acknowledged that ‘[t]he Order itself does not lay down an obligatory link between the employer’s right to deduct VAT in respect of fuel bought by the employee and the use of the fuel by the employee for the requirements of taxed operations of the employer’.

It follows, therefore, that articles 2 and 3 of the U.K. Order are not compatible with Article 17(2)(a) of the Sixth Directive, inasmuch as they enable a taxable person, namely, the employer, to deduct VAT in respect of fuel supplied to non-taxable persons, namely, employees, in conditions that do not guarantee that the VAT deducted relates solely to fuel used for the requirements of the taxable person’s taxed transactions.

The United Kingdom Government observes, however, that the necessary link between the right to deduct VAT and the use of fuel for the requirements of the taxable person’s taxed operations is provided by the VATA 1994, as applied by the British tax authorities. It explains in this respect that the system of reimbursement conferring entitlement to deduction of VAT, which is recognised by the tax authorities, operates as follows. First, the employee provides the employer with detailed mileage records showing which trips were used for business purposes and the corresponding mileage, together with the cylinder capacity of the vehicle used. The employee also provides the employer with the invoices relating to the purchase of fuel. Next, the employer uses a list drawn up by the Royal Automobile Club, the Automobile Association or the U.K. Customs and based on rates approved by the Inland Revenue, relying on detailed information supplied by the vehicle manufacturers in order to determine the cost of fuel per mile for the kind of vehicle concerned. That system offers sufficient guarantees, according to that government, to ensure that the amount reimbursed to the employee corresponds to the cost of the fuel actually used by the latter for the employer’s business requirements.

In this regard it is to be noted that the VATA 1994 is a general law relating to VAT which, in sections 24 to 26, lays down the principles of the deductibility of this tax. Even though, under that law, the right to deduct VAT relates generally to the goods and services used by the taxable person for the purposes of his taxable transactions, that act is not capable of rendering articles 2 and 3 of the U.K. Order compatible with Article 17(2)(a) of the Sixth Directive. Since, in accordance with article 3 of that order, fuel the cost of which is reimbursed by an employer to his employees is automatically treated, for the purposes of the VATA 1994, as having been supplied for the purpose of his business, the national legislation at issue does not ensure that the right to deduct VAT which it confers attaches solely to fuel actually used by employees for the purposes of the employer’s taxable transactions.

As regards the United Kingdom Government’s argument that the practice adopted by the tax authorities guarantees the existence of an obligatory link between the employer’s right to deduct VAT and the use of the fuel by the employees for the employer’s taxed operations, it must be borne in mind that it is settled case-law that the incompatibility of national legislation with Community provisions can be finally remedied only by means of national provisions of a binding nature which have the same legal force as those which must be amended. Mere administrative practices cannot be regarded as constituting the proper fulfilment of obligations under Community law (Case C-197/96 Commission v France [1997] ECR I-1489, paragraph 14; Case C-358/98 Commission v Italy [2000] ECR I-1255, paragraph 17, and Case C-145/99 Commission v Italy [2002] ECR I-2235, paragraph 30).

It follows from the foregoing that, by granting taxable persons the right to deduct VAT on certain supplies of fuel to non-taxable persons in conditions that do not ensure that the VAT deducted attaches solely to fuel used for the purposes of the taxable person’s taxable transactions, articles 2 and 3 of the VAT Order are incompatible with Article 17(2)(a) of the Sixth Directive.

It is apparent from all the foregoing that the Commission’s first claim is well founded.

Concerning the allegation of infringement of Article 18 of the Sixth Directive

The Commission maintains that the deduction provided for by articles 2 and 3 of the VAT Order is allowed without its being required that an invoice should be produced, contrary to Article 18(1)(a) of the Sixth Directive.

The United Kingdom Government challenges this claim only if the first claim should be held to be unfounded.

In those circumstances, it has to be considered that the allegation of infringement of Article 18(1)(a) of the Sixth Directive is also well founded.

It must therefore be declared that, by granting taxable persons the right to deduct VAT on certain supplies of fuel to non-taxable persons, contrary to the provisions of Articles 17(2)(a) and 18(1)(a) of the Sixth Directive, the United Kingdom has failed to fulfil its obligations under that directive.

Under Article 69(2) of the Rules of Procedure, the unsuccessful party is to be ordered to pay the costs if they have been applied for. The Commission having applied for costs and the United Kingdom having been unsuccessful, the latter must be ordered to pay the costs.

On those grounds, the Court (First Chamber) hereby:

1.Declares that, by granting taxable persons the right to deduct value added tax on certain supplies of fuel to non-taxable persons, contrary to the provisions of Articles 17(2)(a) and 18(1)(a) of 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, the United Kingdom of Great Britain and Northern Ireland has failed to fulfil its obligations under that directive;

2.Orders the United Kingdom of Great Britain and Northern Ireland to pay the costs.

[Signatures]

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(1) Language of the case: English.