Flashback on ECJ Cases – C-132/06 (Commission v Italy) – Validity of VAT amnesty

On July 17, 2008, the ECJ issued its decision in the case C-132/06 (Commission v Italy).

Context: Failure of a Member State to fulfil obligations – Article 10 EC – Sixth VAT Directive – Obligations under domestic rules – Control of taxable transactions – Amnesty

Article in the EU VAT Directive

Article 22 of the Sixth VAT Directive (Article 250 in the EU VAT Directive 2006/112/EC).

Article 250
1. Every taxable person shall submit a VAT return setting out all the information needed to calculate the tax that has become chargeable and the deductions to be made including, in so far as is necessary for the establishment of the basis of assessment, the total value of the transactions relating to such tax and deductions and the value of any exempt transactions.
2. Member States shall allow, and may require, the VAT return referred to in paragraph 1 to be submitted by electronic means, in accordance with conditions which they lay down.

Article 10 EC provides:

‘Member States shall take all appropriate measures, whether general or particular, to ensure fulfilment of the obligations arising out of this Treaty or resulting from action taken by the institutions of the Community. They shall facilitate the achievement of the Community’s tasks.

They shall abstain from any measure which could jeopardise the attainment of the objectives of this Treaty.’

The second recital in the preamble to the Sixth Directive reads as follows:

‘… the budget of the Communities shall, irrespective of other revenue, be financed entirely from the Communities’ own resources; … these resources are to include those accruing from value added tax [‘VAT’] and obtained by applying a common rate of tax on a basis of assessment determined in a uniform manner according to Community rules’.

The fourth recital in the preamble to that directive is worded as follows:

‘… account should be taken of the objective of abolishing the imposition of tax on the importation and the remission of tax on exportation in trade between Member States; … it should be ensured that the common system of turnover taxes is non-discriminatory as regards the origin of goods and services, so that a common market permitting fair competition and resembling a real internal market may ultimately be achieved’.

The 14th recital in the preamble to that directive reads as follows:

‘… the obligations of taxpayers must be harmonised as far as possible so as to ensure the necessary safeguards for the collection of taxes in a uniform manner in all the Member States; … taxpayers should, in particular, make a periodic aggregate return of their transactions, relating to both inputs and outputs where this appears necessary for establishing and monitoring the basis of assessment of own resources’.

Facts

The Commission points out that the Community legislature imposed a twofold obligation on Member States consisting not only in adopting all legislative measures required under national law to implement the Sixth VAT Directive but also in adopting all administrative measures necessary to ensure that taxable persons liable to VAT comply with the obligations arising under the Sixth Directive, primarily the obligation to pay the tax due as a result of effecting taxable transactions spanning a certain period of time. It would not have made any sense for the Community legislature to have provided for the harmonisation of VAT, nor would it have served any practical purpose, if national fiscal authorities were not required to implement a system of assessment and monitoring intended to ensure ‘the collection of taxes in a uniform manner in all Member States’, as stated in the fourteenth recital in the preamble to the Sixth Directive.
The rules introduced by Articles 8 and 9 of Italian Law No 289/2002 went far beyond the bounds of administrative discretion conferred on the Member States by the Community legislature. In fact, instead of using that discretion to achieve more effective fiscal monitoring, by the above-mentioned law, the Italian State truly abandoned in a general, indiscriminate and preventive manner all forms of VAT assessment and verification, and is thus in direct breach of the requirements under Article 22 of the Sixth Directive and, as a consequence, of the general obligation under Article 2 to subject all taxable transactions to VAT. The Italian legislature has given all taxable persons liable to VAT and subject to its fiscal competence the possibility of bypassing entirely any form of fiscal control in relation to a series of tax years. A taxable person may acquire such a significant benefit by the payment of an amount calculated according to a standard method which no longer has any connection with the amount of VAT that would have been payable in respect of the cost of supplies of goods or services effected by the taxable person in the relevant tax year.
A particularly striking example of this radical ‘separation’ between the tax liability that is calculated as being payable in accordance with normal VAT rules and the ‘quantum’ payable to qualify for the ‘graveyard amnesty’ is to be found in the case of a taxable person who has failed to file any tax return at all. The taxable person can regularise his position in respect of each tax year by a payment of Euro 1.500 in the case of a natural person or Euro 3.000 in the case of a company. A further example of the total absence of any link with the basis of assessment of transactions effected (but not declared) is to be found in the rules governing the ‘graveyard’ amnesty, which may be procured by submitting a supplementary statement. The amount payable by a taxpayer wishing to take advantage of the amnesty is calculated as a percentage (2%) to be applied to the VAT that would have been payable in respect of the supply of goods or services effected in each tax year (or the VAT improperly deducted in respect of purchases in the same tax year).
Such a general and preventive abandonment of any means of VAT verification is likely seriously to distort the proper functioning of the common VAT system. In particular, it would undermine the principle of fiscal neutrality, which precludes the different VAT treatment of traders effecting the same transactions. Any exception to the rule that VAT should be levied and collected effectively would result, on the one hand, in inflicting serious damage to the detriment of both Italian undertakings and those in other Member States which are subject to ordinary value added tax rules and, on the other hand, in seriously undermining the principle of ‘fair competition’ within the Community market, set out in the fourth recital to the preamble to the Sixth Directive.

Questions

A declaration that, by providing both expressly and in a general manner in Articles 8 and 9 of Law No 289 of 27 December 2002 (Finance Law for 2003) that assessment of taxable transactions effected in the course of a series of tax years is to be abandoned, the Italian Republic has failed to fulfil its obligations under Articles 2 and 22 of the Sixth Council Directive 77/388/EEC of 17 May 1977 in conjunction with Article 10 of the EC Treat

AG Opinion

– declare that, by explicitly providing in Articles 8 and 9 of Law No 289 of 27 December 2002 (Finance Law for 2003) for a general waiver of verification operations on taxable transactions effected in the course of a series of tax years, the Italian Republic has failed to fulfil its obligations under Articles 2 and 22 of the Sixth Directive in conjunction with Article 10 of the EC Treaty;

– order the Italian Republic to pay the costs.

Decision

1. Declares that, by providing in Articles 8 and 9 of Law No 289 of 27 December 2002 relating to the provisions for drawing up the annual and pluriannual budget of the State (Finance Law for 2003) (legge n. 289, disposizioni per la formazione del bilancio annuale e pluriennale dello Stato (legge finanziaria 2003)) for a general and indiscriminate waiver of verification of taxable transactions effected in a series of tax years, the Italian Republic has failed to fulfil its obligations under Articles 2 and 22 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, and Article 10 EC;

2. Orders the Italian Republic to pay the costs.

Summary

By Articles 8 and 9 of Law No. 289 containing provisions for the preparation of the annual and multiannual budget of the State (budget law for 2003) [leg n. 289, disposizioni per la formazione del bilancio annuale e pluriennale dello State (legge finanziara 2003)] of 27 December 2002, in general and without distinction, to waive the audit of taxable transactions carried out in certain taxable periods, the Italian Republic is the has failed to fulfill its obligations under Articles 2 and 22 of the Sixth Directive and under Article 10 EC.

Source: