Flashback on ECJ Cases – C-197/12 (Commission v France) – Conditions for the exemption of navigation on the high seas

On March 21, 2013, the ECJ issued its decision in the case C-197/12 (Commission v France).

Context: State failure – Taxation – VAT – Directive 2006/112 / EC – Article 148 – Exemption of certain operations intended for vessels providing paid passenger traffic or carrying out a commercial activity – Condition of use for navigation on the high seas

Article in the EU VAT Directive

Article 148 of the EU VAT Directive 2006/112/EC

Article 148
Member States shall exempt the following transactions:

(a) the supply of goods for the fuelling and provisioning of vessels used for navigation on the high seas and carrying passengers for reward or used for the purpose of commercial, industrial or fishing activities, or for rescue or assistance at sea, or for inshore fishing, with the exception, in the case of vessels used for inshore fishing, of ships’ provisions;
(b) the supply of goods for the fuelling and provisioning of fighting ships, falling within the combined nomenclature (CN) code 8906 10 00, leaving their territory and bound for ports or anchorages outside the Member State concerned;
(c) the supply, modification, repair, maintenance, chartering and hiring of the vessels
referred to in point (a) and the supply, hiring, repair and maintenance of equipment, including fishing equipment, incorporated or used therein;
(d) the supply of services other than those referred to in point (c), to meet the direct needs of the vessels referred to in point (a) or of their cargoes;
(e) the supply of goods for the fuelling and provisioning of aircraft used by airlines operating for reward chiefly on international routes;
(f) the supply, modification, repair, maintenance, chartering and hiring of the aircraft referred to in point (e), and the supply, hiring, repair and maintenance of equipment incorporated or used therein;
(g) the supply of services, other than those referred to in point (f), to meet the direct needs of the aircraft referred to in point (e) or of their cargoes.

Facts & Questions

By the present action, the Commission claims that the exemption from VAT of the transactions referred to in Article 262, Part II(2), (3), (6) and (7), of the Code général des impôts (French General Tax Code) (CGI) was not made conditional on the requirement of use for navigation on the high seas, in respect of vessels carrying passengers for reward and those used for the purpose of commercial activities. That condition that vessels must be used on the high seas was added to the legislative provisions regulating VAT in France in response to the Commission’s reasoned opinion addressed to the national authorities. However, the bringing of Article 262, Part II(2), of the CGI into line with the VAT directive was rendered ineffective by an explanatory ministerial ruling binding on the administrative authorities, published subsequent to the legislative amendment, which does not mention the condition that vessels must be used for navigation on the high seas, although this was provided for by the legislation.

In the Commission’s view, none of the arguments put forward by the defendant in the course of the pre-litigation procedure, concerning, inter alia, the strict interpretation of Article 148(a) of the VAT Directive and the overly restrictive interpretation of the condition that vessels must be used for navigation on the high seas, can justify the failure to comply with the provisions of the aforementioned directive. Furthermore, as regards Article 131 of Directive 2006/112/EC, relied on by the French authorities, this cannot justify a derogation from the principle that exemptions must be subject to strict interpretation.

AG Opinion

None

Decision

1) By not making the exemption from value added tax of the transactions referred to in Article 262, II, points 2, 3, 6 and 7 of the General Tax Code subject to the requirement of an allocation to the navigation on the high seas of vessels providing paid passenger traffic and those used for the exercise of a commercial activity, the French Republic has failed to fulfill its obligations under Council Directive 2006/112 / EC, 28 November 2006, relating to the common system of value added tax, and, in particular, to Article 148 (a), (c) and (d) thereof.

2. Orders the French Republic to pay the costs.

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