Flashback on ECJ Cases – C-335/05 (Řízení Letového Provozu) – Thirteenth Directive applies only to third States which cannot invoke the most-favoured-nation clause

On June 7, 2007, the ECJ issued its decision in the case C-335/05 (Řízení Letového Provozu).

Context: Thirteenth VAT Directive – Article 2(2) – GATS – Most-favoured-nation clause – Interpretation of secondary Community law in the light of international agreements concluded by the Community

Article in the EU VAT Directive

Article 2(2) of Thirteenth Council Directive 86/560/EEC

Article 2 of the thirteenth directive provides:

1. Without prejudice to Articles 3 and 4, each Member State shall refund to any taxable person not established in the territory of the Community, subject to the conditions set out below, any [VAT] charged in respect of services rendered or moveable property supplied to him in the territory [of] the country by other taxable persons or charged in respect of the importation of goods into the country, in so far as such goods and services are used for the purposes of the transactions referred to in Article 17(3)(a) and (b) of Directive 77/388/EEC or of the provision of services referred to in point 1(b) of Article 1 of this Directive.

2. Member States may make the refunds referred to in paragraph 1 conditional upon the granting by third States of comparable advantages regarding turnover taxes.

3. Member States may require the appointment of a tax representative.

Facts

ŘLP, which is established in the Czech Republic, is an undertaking providing services which is active in the flight security sector. Even though its activities are restricted to the territory of the Czech Republic, it is not only Czech citizens who are the recipients but equally also German citizens. Furthermore, ŘLP offers flying instruction sessions in the Czech Republic. For those purposes, however, it had recourse to flight simulator training and to other training courses provided in Germany. Following the imposition of VAT on the supply of those services in Germany, ŘLP applied for a refund of this tax in respect of the year 2002.
The Bundesamt für Finanzen rejected that application on the ground that the conditions for application of the sixth sentence of Paragraph 18(9) of the UStG – and more particularly the reciprocity requirement – were not met in this case.
Since the objection raised against that decision was also rejected, ŘLP brought an action before the Finanzgericht Köln.
The national court notes that, during the relevant period, the Czech Republic levied a turnover tax but provided neither for the deduction of input tax paid nor for the refund of such tax to foreign traders. The national court therefore asks itself whether the applicant in the main proceedings should not have been exempted from that tax in the light of Article II(1) of the GATS. In this regard, it observes that the GATS is an agreement governed by international law which creates rights and obligations only as between its members. If an obligation deriving from the GATS is infringed, the agreement governing the settlement of disputes concluded in the framework of the World Trade Organisation is exclusively applicable.
However, an agreement such as the GATS is binding on the institutions of the Community and on the Member States, in accordance with Article 300(7) EC, and forms an integral part of the Community legal order. Secondary Community law must therefore be interpreted in the light of that agreement and in particular of the most-favoured-nation clause contained in Article II(1).

Questions

Is Article 2(2) of Thirteenth Council Directive 86/560/EEC of 17 November 1986 on the harmonization of the laws of the Member States relating to turnover taxes to be interpreted restrictively as meaning that the possibility thereby afforded the Member States of making refunds of value added tax conditional on the grant by non-Member States of comparable advantages in regard to turnover taxes, does not refer to States which, as contracting parties to the General Agreement on Trade in Services – GATS – (BGBl. II 1994, 1473, 1643), may rely on the most- favoured nation clause contained therein (Art. II(1) GATS)?

AG Opinion

Article 2(2) of Thirteenth Council Directive 86/560/EEC of 17 November 1986 on the harmonisation of the laws of the Member States relating to turnover taxes – Arrangements for the refund of value added tax to taxable persons not established in Community territory must be interpreted as meaning that the possibility it affords the Member States of making refunds of input value added tax paid by taxable persons not established in the territory of the Community conditional upon the granting by third States of comparable advantages regarding turnover taxes may be applied in relation to all third States, including those which, as contracting parties to the General Agreement on Trade in Services, may rely on the most-favoured-nation clause contained in Article II(1) of that agreement.

Decision

Article 2(2) of Thirteenth Council Directive 86/560/EEC of 17 November 1986 on the harmonisation of the laws of the Member States relating to turnover taxes – Arrangements for the refund of value added tax to taxable persons not established in Community territory must be interpreted as meaning that the ‘third States’ referred to in that provision include all third States and that that provision is without prejudice to the ability and the responsibility of the Member States to comply with their obligations under international agreements such as the General Agreement on Trade in Services.

Personal comments/VATupdate

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