(Failure of a Member State to fulfil obligations – Directive 77/388/EEC – VAT – Article 11(A)(1)(a) – Basis of assessment – Subsidy directly linked to the price – Regulation (EC) No 603/95 – Aid granted in the dried fodder sector)

Summary of the Judgment

Tax provisions – Harmonisation of laws – Turnover taxes – Common system of value added tax – Basis of assessment – Supply of goods and services – Subsidies directly linked to the price – Meaning – Aid granted in the dried fodder sector – Exclusion – National scheme failing to levy value added tax on that aid

(Council Directive 77/388, Art. 11(A)(1)(a))

Article 11(A)(1)(a) of the Sixth Directive 77/388 on the harmonisation of the laws of the Member States relating to turnover taxes, is intended to subject the full value of goods or services to VAT by providing that the basis of assessment comprises subsidies directly linked to the price of the transaction in question, paid to taxable persons. A Member State which does not levy the tax on aid paid under Regulation No 603/95 on the common organisation of the market in dried fodder does not fail to fulfil its obligations under that provision.

‘Subsidies linked directly to the price’ include only subsidies which constitute the whole or part of the consideration for a supply of goods or services and which are paid by a third party to the seller or supplier.

The conditions for the aid at issue to be subject to VAT are not met in respect of the sale by a processing undertaking, after drying, of fodder purchased from producers of green fodder, since, in such a case, the aid is not paid specifically to a processing undertaking to enable it to supply dried fodder to a purchaser at a price which is lower than on the world market. Nor are those conditions met as regards the special-order contracts concluded by such an undertaking with a producer of green fodder, as the aid which the processing undertaking receives is not paid for its benefit in such a case and that undertaking merely functions as an intermediary between the body which distributes the aid and the fodder producer.

(see paras 27-28, 32-33, 37, 39, 43, 46)

JUDGMENT OF THE COURT (Second Chamber) 15 July 2004 (1)

(Failure of a Member State to fulfil obligations – Directive 77/388/EEC – VAT – Article 11(A)(1)(a) – Taxable amount – Subsidy directly linked to the price – Regulation (EC) No 603/95 – Aid granted in the dried fodder sector)

In Case C-381/01,

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

applicant,

Italian Republic, represented by I. Braguglia, acting as Agent, and by G. de Bellis, avvocato dello Stato, with an address for service in Luxembourg,

defendant,

supported by Republic of Finland, represented by T. Pynnä, acting as Agent, with an address for service in Luxembourg, and by Kingdom of Sweden, represented by A. Kruse, acting as Agent,

APPLICATION for a declaration that, by failing to levy value added tax on aid paid under Council Regulation (EC) No 603/95 of 21 February 1995 on the common organisation of the market in dried fodder (OJ 1995 L 63, p. 1), the Italian Republic has failed to fulfil its obligations under Article 11 of 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 COURT (Second Chamber),

composed of: C.W.A. Timmermans, President of the Chamber, C. Gulmann (Rapporteur), J.-P. Puissochet, J.N. Cunha Rodrigues and N. Colneric, Judges,

Advocate General: L.A. Geelhoed, Registrar: L. Hewlett, Principal Administrator,

after hearing oral argument from the parties at the hearing on 16 October 2003, at which the Commission was represented by E. Traversa, K. Simonsson, I. Koskinen and K. Gross, acting as Agents, the Italian Republic by G. de Bellis, the Republic of Finland by T. Pynnä and the Kingdom of Sweden by A. Kruse,

having heard the Opinion of the Advocate General at the hearing on 27 November 2003,

gives the following

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’).

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.’

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.

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

On 4 November 1998, having found that the Italian Republic was not levying VAT on aid paid under Regulation No 603/95 and taking the view that this was contrary to Article 11(A)(1)(a) of the Sixth Directive, the Commission sent the Italian Republic, in accordance with the procedure laid down in Article 169 of the EC Treaty (now Article 226 EC), a letter of formal notice calling on it to submit its observations within two months.

12Since it did not receive a reply to that letter, the Commission, on 30 July 1999, sent a reasoned opinion to the Italian Republic and required it to take the measures necessary to comply with the opinion within two months.

13The Italian Government replied by letter of 28 September 1999. It challenged the basis of the Commission’s complaints, stating inter alia that Community subsidies to undertakings processing fodder are not directly linked to the price of drying operations and therefore are not to be included in the taxable amount for VAT, as defined in Article 11(A)(1)(a) of the Sixth Directive.

14Against that background, the Commission decided to bring this action.

15By order of the President of the Court of Justice of 29 April 2003, the Republic of Finland and the Kingdom of Sweden were granted leave to intervene in support of the form of order sought by the defendant, pursuant to Article 93(7) of the Rules of Procedure, that is to say solely by way of observations during the oral procedure.

Substance

Arguments of the parties

The Commission submits that the supplies involved in two of the three possible ways in which undertakings processing fodder may carry out their activities are subject to VAT, namely:

–the purchase of green fodder from producers followed by the onward sale of the processed product to third parties;

–the conclusion with producers of special-order contracts for green fodder without transfer of ownership in the fodder and the subsequent return of the processed product to the producers.

17In the case of processing undertakings which purchase fodder from producers in order subsequently to sell it on to third parties, contracts for the purchase and onward sale of goods are concluded; they are transactions which must clearly be regarded as supplies of goods for the purposes of the Sixth Directive and are consequently taxable.

18In the case of special-order contracts, the fact that the processing undertaking returns the dried fodder to the green fodder producer means that the supply must be regarded as the supply of a service, namely the drying of fodder. That supply of a service is thus, as such, taxable on the basis of the Sixth Directive.

19Under Article 11(A)(1)(a) of the Sixth Directive, taxable supplies should give rise to a charge to VAT on aid paid under Regulation No 603/95.

20The Commission points out that under the terms of Article 9 of Regulation No 603/95, ‘[t]he aid provided for in Article 3 shall be granted only to undertakings processing the products …’. Those undertakings are thus the beneficiaries of the subsidies in the legal sense of the term and the Community legislature intended to denote them in referring, in Article 11(A)(1)(a) of the Sixth Directive, to ‘the consideration which … is to be obtained by the supplier’. Regulation No 603/95 does not mention any other beneficiary, in the legal sense of the term, of the aid for marketing dried fodder.

21The Commission acknowledges that a subsidy granted to a particular category of undertakings may have beneficial economic effects for operators situated, in the production cycle, both upstream from the subsidised undertakings (in this case the producers of green fodder) and downstream from them (in this case livestock farmers). In the case of special-order contracts, the Community legislature itself requires, in Article 11(2) of Regulation No 603/95, that the processing undertaking pay to the producers the aid received from the intervention agency.

22However, neither the possibility that a subsidy will benefit other operators nor the obligation to pay all or part of a subsidy to other operators in any way alters the legal aspects of the problem. The beneficiary of the aid, in the legal sense of the term, namely the processing undertaking, must be distinguished from the indirect beneficiary of the subsidy in the economic sense of the term.

23The Commission argues that the Community legislature, in employing in Article 11(A)(1)(a) of the Sixth Directive the concept of ‘subsidies directly linked to the price’, intended to include in the taxable amount for VAT all aid having a direct impact on the amount of consideration obtained by the supplier. Those subsidies must have a direct link, or even a causal link, with the supply of precisely quantified or quantifiable goods or services: aid is granted to the extent to which those goods or services are actually sold on the market. That is the case here.

24The Italian Government contends, as regards the special-order contracts, that the aid does not benefit the processing undertaking but the producer, in accordance with Article 11(2) of Regulation No 603/95, by virtue of which special-order contracts must include a clause laying down an obligation on processing undertakings to pay the producers the aid specified in Article 3 of that regulation which they receive. In those circumstances, the aid paid is not subject to VAT.

25As regards the case in which the processing undertaking buys green fodder from the producer in order subsequently to sell it on, after processing, to third parties, the aid will be subject to VAT only if it can be proved that the purchasers of the dried fodder profit from the aid. There is no such proof.

26During the oral procedure, the Finnish and Swedish Governments supported the form of order sought by the Italian Government.

Findings of the Court

27By providing that the taxable amount for VAT encompasses, in the cases specified by it, subsidies paid to taxable persons, Article 11(A)(1)(a) of the Sixth Directive is intended to subject the full value of goods or services to VAT and hence to prevent payment of a subsidy entailing a lower return from the tax.

28In accordance with its terms, that provision applies where the subsidy is directly linked to the price of the transaction in question.

29For that to be the case, the subsidy must first be paid specifically to the subsidised operator to enable it to supply particular goods or services. Only in that case can the subsidy be regarded as consideration for the supply of goods or services and therefore be taxable. It must be noted, in particular, that the beneficiary is recognised as having a right to receive the subsidy, since a taxable supply has been made by it (Case C‑184/00 Office des produits wallons [2001] ECR I-9115, paragraphs 12 and 13).

30It is also necessary to verify that the purchasers of the goods or services benefit from the subsidy granted to the beneficiary. The price payable by the purchaser must be fixed in such a way that it diminishes in proportion to the subsidy granted to the seller or supplier of the goods or services, which therefore constitutes an element in determining the price demanded by the latter. It must also be ascertained whether, objectively, the fact that a subsidy is paid to the seller or supplier allows the latter to sell the goods or supply the services at a price lower than he would have to demand in the absence of subsidy (Office des produits wallons, paragraph 14).

31The consideration represented by the subsidy must, at the very least, be identifiable. It is not necessary for the subsidy to correspond exactly to the diminution in the price of the goods or services supplied. It is sufficient if the relationship between the diminution in price and the subsidy, which may be at a flat rate, is significant (Office des produits wallons, paragraph 17).

32In conclusion, ‘subsidies directly linked to the price’ for the purposes of Article 11(A)(1)(a) of the Sixth Directive include only subsidies which constitute the whole or part of the consideration for a supply of goods or services and which are paid by a third party to the seller or supplier (Office des produits wallons, paragraph 18).

33It must be held that in the present case the conditions for the aid at issue to be subject to VAT are not met in respect of either of the two categories of transaction referred to by the Commission, namely (i) the sale by a processing undertaking, after drying, of fodder purchased from producers of green fodder and (ii) the special-order contracts concluded by a processing undertaking with a producer of green fodder.

34It is the Commission’s contention that the sale of dried fodder by a processing undertaking which has purchased the raw material from producers of green fodder constitutes a supply of goods within the meaning of the Sixth Directive.

35The aid is paid to the processing undertaking, which may freely use it.

36However, it is not directly linked to the price of the taxable transaction for the purposes of Article 11(A)(1)(a) of the Sixth Directive.

37It is not paid specifically to enable the processing undertaking to supply dried fodder to a purchaser.

38In this instance the parties agree that there is no shortage of dried fodder on the world market. Nor is it in dispute that the objective of the aid scheme is, first, to encourage production within the Community, despite the fact that production costs are higher there than on the world market, in order to ensure an internal source of supply and, second, to produce high-quality fodder. In that regard, the 11th recital in the preamble to Regulation No 603/95 mentions ‘[encouraging] a regular supply of green fodder to processors and [enabling] producers to benefit from the aid scheme’ and the 10th recital states that criteria relative to the minimum quality of dried fodder entitled to aid should be determined – criteria which are set out in Article 8 of Regulation No 603/95.

39Against that background, it does not seem that the aid scheme is a scheme for promoting consumption. It is not intended to encourage third parties to buy dried fodder on account of prices which, because of the aid, are lower than the world market price, a situation in which a taxable amount for VAT restricted to the price paid would not correspond to the full value of the goods supplied. It is intended to enable those third parties to obtain supplies of fodder within the Community at a price which is comparable to the world market price and at which they could in any event obtain supplies outside the Community if, in the absence of aid, the supply of fodder within the Community were non-existent or proved insufficient. The VAT charged on that price therefore reflects the full value of the product on the market.

40On those grounds alone and without any need to consider whether the other conditions for including the aid in the taxable amount are met, it must be held that the Commission’s complaint concerning the sale, after drying, of fodder purchased from producers is unfounded.

41As the Commission points out, the purpose of a special-order contract is the supply of a drying service, which is carried out by the processing undertaking on behalf of the producer of green fodder.

42However, Article 11(A)(1)(a) of the Sixth Directive requires that the subsidy, in order to be taxable, be paid to the supplier of the goods or services, so that he may freely use it.

43In the case of special-order contracts, the aid which the processing undertaking receives is not paid for its benefit.

44Admittedly, Article 9 of Regulation No 603/95 provides that ‘the aid … shall be granted only to undertakings processing the products …’.

45However, the 15th recital in the preamble to Regulation No 603/95 states, in relation to special-order contracts, that the aid should be passed back to the producer and Article 11(2) of the regulation imposes an obligation on processing undertakings to pay the producers the aid which they receive for the quantities processed under the contracts entered into.