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(Reference for a preliminary ruling from the Court of Session (Scotland))
(Sixth VAT Directive – Deduction of input tax – Goods and services used for both taxable and exempt transactions – Deductible proportion – Calculation – Methods laid down in the third subparagraph of Article 17(5) – Obligation to apply the rounding up rule in the second subparagraph of Article 19(1))
Tax provisions – Harmonisation of laws – Turnover taxes – Common system of value added tax – Deduction of input tax – Goods and services used both for transactions in respect of which VAT is deductible and for transactions in respect of which it is not deductible
(Council Directive 77/388, Arts 17(5), third subpara., and 19(1))
Member States are not obliged to apply the rounding up rule in the second subparagraph of Article 19(1) of Sixth Directive 77/388 on the harmonisation of the laws of the Member States relating to turnover taxes where the proportion of input tax deductible is calculated in accordance with one of the special methods in (a), (b), (c) or (d) of the third subparagraph of Article 17(5) of that directive.
Article 19(1) of the Sixth Directive refers only to the proportion deductible under the first subparagraph of Article 17(5) of the directive and therefore lays down a detailed rule for calculating the proportion referred to in that provision only. It follows that, where a particular case is subject to a special scheme allowing for derogations, such as that in (a) to (d) of the third subparagraph of Article 17(5) of the Sixth Directive, the rule for calculating the deductible proportion in Article 19 of the directive is inapplicable in that case. Thus, Member States are not obliged to apply the rounding up rule in that provision where they employ the methods of calculation set out in (a), (b), (c) or (d) of the third subparagraph of Article 17(5) of that directive but may adopt their own rounding up rules, provided that they observe the principles underpinning the common system of value added tax.
(see paras 22, 25, 29, operative part)
18 December 2008 (*)
(Sixth VAT Directive – Deduction of input tax – Goods and services used for both taxable and exempt transactions – Deductible proportion – Calculation – Methods laid down in the third subparagraph of Article 17(5) – Obligation to apply the rounding up rule in the second subparagraph of Article 19(1))
In Case C‑488/07,
REFERENCE for a preliminary ruling under Article 234 EC from the Court of Session (Scotland), made by decision of 31 October 2007, received at the Court on 5 November 2007, in the proceedings
THE COURT (Eighth Chamber),
composed of T. von Danwitz (Rapporteur), President of the Chamber, E. Juhász and G. Arestis, Judges,
Advocate General: P. Mengozzi,
Registrar: M. Ferreira, Principal Administrator,
having regard to the written procedure and further to the hearing on 8 October 2008,
after considering the observations submitted on behalf of:
– Royal Bank of Scotland Group plc, by C. Tyre QC and D. Small, Advocate,
– the United Kingdom Government, by Z. Bryanston-Cross and S. Ossowski, acting as Agents, and I. Hutton, Barrister,
– the Commission of the European Communities, by R. Lyal and M. Afonso, acting as Agents,
having decided, after hearing the Advocate General, to proceed to judgment without an Opinion,
gives the following
This reference for a preliminary ruling concerns the interpretation of the third subparagraph of Article 17(5) and the second subparagraph of Article 19(1) 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 (OJ 1977 L 145, p. 1) (‘the Sixth Directive’).
The reference was made in the course of proceedings between the Royal Bank of Scotland Group plc (‘Royal Bank of Scotland’) and the Commissioners for Her Majesty’s Revenue and Customs (‘the Commissioners’), who are responsible for the collection of value added tax (VAT) in the United Kingdom, concerning the extent of the right to deduct VAT payable by that company.
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.’
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.
3. A description of any likely significant effects, to the extent of the information available on such effects, of the project on the environment resulting from:
(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.
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’.
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)]
…
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.’
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’.
13By its first question, the Court of Session asks whether Member States are obliged to apply the rounding up rule in the second subparagraph of Article 19(1) of the Sixth Directive where the proportion of input tax deductible is calculated in accordance with one of the special methods in (a), (b), (c) or (d) of the third subparagraph of Article 17(5) of that directive.
14The Court has consistently held that the right to deduct provided for in Article 17 et seq. of the Sixth Directive is an integral part of the VAT scheme and, in principle, may not be limited (Case C‑243/03 Commission v France [2005] ECR I‑8411, paragraph 28 and the case‑law cited).
15The deduction system is meant to relieve the trader entirely of the burden of the VAT payable or paid in the course of all his economic activities. The common system of VAT consequently ensures complete neutrality of taxation of all economic activities, whatever their purpose or results, provided that they are themselves subject, in principle, to VAT (see Case C‑408/98 Abbey National [2001] ECR I‑1361, paragraph 24 and the case‑law cited).
16Accordingly, where goods or services acquired by a taxable person are used for purposes of transactions that are exempt or do not fall within the scope of VAT, no output tax can be collected or input tax deducted (Case C‑72/05 Wollny [2006] ECR I‑8297, paragraph 20).
17Article 17(5) of the Sixth Directive lays down the rules applicable to the right to deduct VAT where the VAT relates to goods or services used by the taxable person ‘both for transactions covered by paragraphs 2 and 3, in respect of which value added tax is deductible, and for transactions in respect of which value added tax is not deductible’. In such a case, the first subparagraph of Article 17(5) of the Sixth Directive provides that only such proportion of the VAT is deductible as is attributable to the former taxable transactions (Abbey National, paragraph 37, and Case C‑16/00 Cibo Participations [2001] ECR I‑6663, paragraph 34).
18Under the second subparagraph of Article 17(5) of the Sixth Directive, the deductible amount is calculated according to a proportion fixed in accordance with Article 19 of that directive.
19The third subparagraph of Article 17(5) nevertheless allows derogation from that rule by permitting Member States to employ one of the other methods for determining the deductible amount listed in that subparagraph, namely determination of a separate proportion for each sector of business or deduction on the basis of the use made of all or part of the goods and services for a specific activity, or they may even exclude the right of deduction in certain circumstances.
20That provision does not lay down any specific rule as to which method Member States must employ to round up the deductible amount thus determined.
21Contrary to what Royal Bank of Scotland contends, the rounding up rule in the second subparagraph of Article 19(1) of the Sixth Directive is not applicable where a particular type of case is subject to a special set of rules laid down in the third subparagraph of Article 17(5) of that directive.
22As is quite clear from the wording of Articles 17(5) and 19(1) of the Sixth Directive, the latter provision refers only to the proportion deductible under the first subparagraph of Article 17(5) of the directive, and therefore lays down a detailed rule for calculating the proportion referred to in that provision only.
23That is also the conclusion to be drawn from the overall scheme of the provisions in question. While the second subparagraph of Article 17(5) provides for the application of Article 19 as the rule for calculation of the deductible amount, the third subparagraph, which starts with the word ‘however’, allows Member States to provide for derogations of greater or lesser scope from that rule, extending even as far as excluding the right of deduction.
24Finally, that conclusion is also confirmed by the purpose of (a) to (d) of the third subparagraph of Article 17(5) of the Sixth Directive, the aim of which is in particular, as the Commission contends, to permit Member States to achieve greater accuracy by taking into account the specific characteristics of the taxable person’s activities. Accordingly, Member States must be in a position to apply more accurate rounding up rules than those provided for in the second subparagraph of Article 19(1) of the Sixth Directive. If Member States were obliged, for reasons of simplification, to round up in accordance with the latter method, which is less accurate, that would be contrary to the objective of those derogations.
25It follows that, where a particular case is subject to such a special scheme allowing for derogations, the rule for calculating the deductible proportion in Article 19 of the Sixth Directive is inapplicable in that case. Thus, Member States are not obliged to apply the rounding up rule in that provision where they employ the methods of calculation set out in (a), (b), (c) or (d) of the third subparagraph of Article 17(5) of that directive.
26Contrary to Royal Bank of Scotland’s contention, that finding is in no way affected by the objective of the Sixth Directive stated in the 12th recital in its preamble, namely that the deductible proportion should be calculated in a similar manner in all Member States. First, there is no requirement in that recital that the deductible proportion should be calculated in an identical manner in all Member States. Second, by expressly providing that Member States are permitted to derogate from the method of calculation in Article 19(1), by employing different methods, the Sixth Directive makes it possible for the deductible proportion to be calculated differently in the Member States.
27Nor can it be said that the principle of fiscal neutrality, which reflects the principle of equal treatment, or the principle of proportionality require that a single method of rounding up be applied for all those methods of calculation (see, to that effect, Koninklijke Ahold, paragraphs 37 and 41).
28Finally, contrary to Royal Bank of Scotland’s contention, that finding is not affected by any interpretation which could be given to Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ 2006 L 347, p. 1), since that directive entered into force on 1 January 2007, after the facts giving rise to the main proceedings, and is therefore not applicable.
29In the light of the foregoing considerations, the answer to the first question must be that Member States are not obliged to apply the rounding up rule in the second subparagraph of Article 19(1) of the Sixth Directive where the proportion of input tax deductible is calculated in accordance with one of the special methods in (a), (b), (c) or (d) of the third subparagraph of Article 17(5) of that directive.
30By its second question, the Court of Session asks whether the second subparagraph of Article 19(1) of the Sixth Directive permits Member States to require that the proportion deductible be rounded up to a figure other than the next highest whole number where that proportion is determined in accordance with Article 17(5) of that directive.
31There is no need to answer that question concerning the interpretation of the second subparagraph of Article 19(1), since Member States are not obliged to apply the rounding up rule in that provision where they employ the methods of calculation provided for in the third subparagraph of Article 17(5) of that directive.
32It follows that, having regard to the answer given to the first question and the considerations set out in the previous paragraph, it is not necessary to answer the second question referred for a preliminary ruling.
33Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the national court, the decision on costs is a matter for that court. Costs incurred in submitting observations to the Court, other than the costs of those parties, are not recoverable.
On those grounds, the Court (Eighth Chamber) hereby rules:
Member States are not obliged to apply the rounding up rule in the second subparagraph of Article 19(1) 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 where the proportion of input tax deductible is calculated in accordance with one of the special methods in (a), (b), (c) or (d) of the third subparagraph of Article 17(5) of that directive.
[Signatures]
*
Language of the case: English.