On October 11, 2007, the ECJ issued its decision in the case C-283/06 (KÖGÁZ and Others).
Context: Sixth VAT Directive – Article 33(1) – Definition of ‘turnover taxes’ – Local business tax
Article in the EU VAT Directive
Article 33(1) of the Sixth VAT Directive (Article 401 of the EU VAT Directive 2006/112/EC)
Article 401 (Other taxes, duties and charges)
Without prejudice to other provisions of Community law, this Directive shall not prevent a Member State from maintaining or introducing taxes on insurance contracts, taxes on betting and gambling, excise duties, stamp duties or, more generally, any taxes, duties or charges which cannot be characterised as turnover taxes, provided that the collecting of those taxes, duties or charges does not give rise, in trade between Member States, to formalities connected with the crossing of frontiers.
Facts
Case C-283/06
- By a series of decisions adopted in 2005, the defendant in the main proceedings in Case C‑283/06 upheld the decisions ordering that HIPA payments on account be made in respect of 2005, which had been taken by various local authorities against the applicants in the main proceedings in that case.
- That defendant based its decisions on Article 41(1) and (2) of the Act of 1990 and on various local decrees introducing the HIPA. It takes the view that the applicants in the main proceedings in Case C‑283/06 acknowledged their fiscal obligations in respect of that tax by lodging a HIPA tax return and are therefore bound to make a tax payment on account. In some of its decisions it rebutted the objection that, on the basis of Article 33 of the Sixth Directive, the HIPA has no legal basis since it is a tax which can be characterised as a turnover tax.
- The applicants in the main proceedings in Case C‑283/06 brought actions against those decisions before the Zala Megyei Bíróság (Zala District Court). In essence, they argue that those decisions are unlawful on the ground that, since May 2004, they have no longer been subject to the HIPA because of the direct applicability of Article 33 of the Sixth Directive.
- The referring court is of the opinion that point 3(a) of part 4 of Annex X to the Act of Accession can be interpreted as meaning that it establishes a temporary derogation allowing the HIPA to be maintained or, at least, that, by authorising reductions in that tax until 31 December 2007, the contracting parties have temporarily accepted that that tax is compatible with Community law.
- The referring court is of the opinion that, should the Court agree with that interpretation, any other question is superfluous. Should the Court disagree with that interpretation, the referring court takes the view that it is necessary to obtain an interpretation of ‘a tax which cannot be characterised as a turnover tax’, for the purposes of Article 33 of the Sixth Directive.
Case C-312/06
- By a decision adopted in 2005, the defendant in the main proceedings in Case C‑312/06 upheld the decision taken by a local authority against the applicant in the main proceedings in that case, ordering that HIPA payments on account be made in respect of the fiscal periods ending on 15 September 2005 and 15 March 2006.
- The grounds of that decision, which was based on Articles 39(1) and 41(2) of the Act of 1990 and on Article 8(1) of Local Decree No 13/2003 (III.27), stated that, at the end of an examination of the HIPA during accession negotiations, the Republic of Hungary obtained, in the Act of Accession, a derogation on reductions of that tax until 31 December 2007. According to the defendant in the main proceedings in Case C‑312/06, the information in the Act of Accession on the conception of that tax supports the conclusion that it was approved by the European Union.
- The applicant in the main proceedings in Case C‑312/06 brought an action against that decision before the Vas Megyei Bíróság (Vas District Court). It submits that that decision is unlawful, on the ground that the HIPA is a turnover tax, the maintenance of which by the Republic of Hungary after its accession to the Union is contrary to Article 33(1) of the Sixth Directive and which cannot, furthermore, be regarded as provisionally authorised by the Act of Accession.
- That action was dismissed by the Vas Megyei Bíróság, on the ground, in substance, that the grant under the Act of Accession of a provisional derogation to the Republic of Hungary in respect of reductions in the HIPA necessarily means that the Union allowed that tax to be maintained temporarily.
- The applicant in the main proceedings in Case C‑312/06 lodged an appeal before the Legfelsőbb Bíróság (Supreme Court) against the decision given by the Vas Megyei Bíróság.
- The referring court is of the opinion that, if point 3(a) of part 4 of Annex X to the Act of Accession can be interpreted as meaning that the contracting parties have, by granting a temporary derogation concerning reductions in the HIPA, also granted a derogation on that tax itself, the tax is therefore compatible with Community law until 31 December 2007. On the other hand, if the opposite interpretation is accepted, it will be necessary to determine, in the light of Article 33(1) of the Sixth Directive, whether, on the basis of the essential substantive criteria contained in that provision, a tax such as the HIPA is a tax which can be characterised as a turnover tax.
Questions
Case C-283/06
1. Must point 3(a) of part 4 of Annex X to the [Act of Accession] … be interpreted as meaning that:
– the Republic of Hungary has been granted a temporary derogation which allows it to maintain [the HIPA], or that
– by granting the possibility to maintain reductions [in the HIPA], the Act of Accession also recognises that the Republic of Hungary has the (provisional) right to maintain a tax on economic activities?
2. Should Question 1 be answered in the negative, … on a correct interpretation of the Sixth … Directive … , what are the criteria on which a tax may be considered not to be characterised as a turnover tax for the purposes of Article 33 of [that] … directive?’
Case C-312/06
1. May … point 3(a) of part 4 of Annex X to the [Act of Accession] … be interpreted as meaning that the Republic of Hungary has been granted a provisional derogation which allows it to maintain the [HIPA], that is to say, as meaning that the Act of Accession, in contemplating the possibility of maintaining the tax reductions [in the HIPA], recognised that the Republic of Hungary has the provisional right to maintain a tax of the same type as the [HIPA]?
2. Must Article 33(1) of [the Sixth Directive] … be interpreted as meaning that it prohibits the maintenance of a tax (the [HIPA]) on profit-making business activities which is fundamentally characterised by the fact that it is imposed in respect of net receipts, after deduction of the purchase price of the goods sold and the price of services supplied by third parties and the cost of raw materials? That is to say, must a tax with those characteristics be classified as a turnover tax prohibited by that provision?
AG Opinion
None
Decision
Article 33(1) 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, as amended by Council Directive 91/680/EEC of 16 December 1991 supplementing the common system of value added tax and amending Directive 77/388 with a view to the abolition of fiscal frontiers, must be interpreted as not precluding the maintenance of a charge to tax with characteristics such as those of the tax at issue in the main proceedings.
Summary
Local business tax: Article 401 of the VAT Directive must be interpreted as not precluding the enforcement of a tax levy with characteristics such as those of a local business tax.
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