On Spetember 3, 2009, the ECJ issued its decision in the case C-2/08 (Fallimento Olimpiclub).
Context: VAT – Primacy of Community law – Provision of national law laying down the principle of res judicata.
Article in the EU VAT Directive
N/A
Facts
Summary
- O was found by the Italian Finance Administration to have evaded VAT by relying on a fraudulent contract, and therefore adjusted its tax bill
- O challenged the adjustment notices before national courts, which held in favour of O
- Finance Administration brought the case again before Italian courts
- O sought to rely on the principle of res judicata in the Italian Civil Code, which prohibits reopening a settled case, to assert the binding nature of earlier judgments
- However, application of the res judicata principle would prevent the Italian court from considering Community legislation and case law
Detailed
- Olimpiclub, a limited liability company the objects of which are to construct and manage sporting facilities, owns a sports complex located on land owned by the Italian State. On 27 December 1985, it concluded with the Associazione Polisportiva Olimpiclub (‘the Associazione’) – a non-profit-making association, most of the founding members of which also held shares in Olimpiclub – a contract under which the Associazione had the use of all the facilities of that sports complex (‘the contratto di comodato’). In return, the Associazione was, first, to pay the State fee (the sum payable for the grant of the use of land) to the Italian State; secondly, to repay standard costs in the amount of ITL 5 million per year; and, thirdly, to transfer to Olimpiclub its entire gross income, consisting of the total amount of the annual fees paid by its members.\
- In 1992, following investigations into the contratto di comodato, the Finance Administration reached the conclusion that the parties to the contract had, in reality, by means of an act which on the face of it was lawful, intended solely to circumvent the legislation in order to obtain a tax advantage. Thus, Olimpiclub had transferred to a non‑profit‑making association all the administrative and management burdens of the sports complex in question, while collecting the income produced by that association in the form of the fees paid by its members, which on that basis was not liable to VAT. Since the Finance Administration therefore considered that the contratto di comodato could not be relied upon against it, it apportioned to Olimpiclub the entire gross income produced by the Associazione for the years under investigation and, accordingly, by means of four adjustment notices, corrected the VAT returns submitted by Olimpiclub for the tax years 1988 to 1991.
- Olimpiclub challenged those adjustment notices before the Commissione tributaria provinciale di primo grado di Roma (Provincial Tax Court of First Instance, Rome), which upheld that action, finding that the Finance Administration had wrongly disapplied the legal effects of the contratto di comodato, since it had failed to show that the agreement was fraudulent.
- The Finance Administration brought an appeal against that decision before the Commissione tributaria regionale del Lazio (Regional Tax Court, Lazio), which upheld the decision. That court found that the Finance Administration had not proved fraudulent intent on the part of the two parties that had entered into the contratto di comodato, since it was plausible that their reasons for concluding that contract had to do with the fact that it was uneconomic for a commercial company directly to manage what are essentially sporting activities.
- The Finance Administration brought an appeal on a point of law before the referring court against that last decision. Since Olimpiclub had in the intervening period been put into liquidation, the administrator in the liquidation proceedings appeared before the referring court as defendant.
- In those proceedings, the administrator relied on the existence of two judgments of the Commissione tributaria regionale del Lazio, which had acquired the force of res judicata and concerned VAT adjustment notices issued as part of the same tax inspection of Olimpiclub, but relating to other tax years, namely judgments No 138/43/00 and No 67/01/03, for the tax years 1992 and 1987 respectively.
- Even though they related to different tax periods, the findings in those judgments and the approach adopted are binding in the main proceedings pursuant to Article 2909 of the Italian Civil Code, which lays down the principle of res judicata.
- It is apparent from the order for reference that, in taxation matters, when interpreting Article 2909 of the Italian Civil Code, the Italian courts adhered for a long time to the principle of the discreteness of final judgments, in accordance with which each tax year remains separate from other tax years, also in terms of the legal relationship between the taxpayer and the tax authorities, which is distinct from that of previous or subsequent tax years. The effect is that, whenever disputes relating to different tax years for the same tax (even if they concern similar questions) are decided separately by a number of judgments, each dispute remains separate and the final ruling has no force of res judicata for disputes concerning a different tax year.
- However, that approach has recently been modified, owing in particular to the fact that the principle of the discreteness of final judgments has been discarded. It is now possible, where the findings in a judgment delivered in one dispute relate to issues similar to those arising in another dispute, for the reasoning of that judgment to be properly relied on in the other dispute, even though the judgment in question concerns a different tax period.
- In so far as the two judgments referred to in paragraph 10 of the present judgment found that there were valid economic reasons for the conclusion of the contratto di comodato between the Associazione and Olimpiclub and, accordingly, found in favour of Olimpiclub, the latter has contended that the appeal before the referring court must be declared inadmissible in that it seeks to obtain a fresh ruling on the same issues of fact and of law.
- It is in the light of those factors that the referring court regards itself as bound by those judgments, which definitively hold that the contratto di comodato is genuine, lawful and not fraudulent. However, the referring court points out that this could preclude it from examining the main proceedings in the light of the Community legislation and the case-law of the Court in relation to VAT, in particular Case C-255/02 Halifax and Others [2006] ECR I-1609, and possibly from determining the existence of an abuse of rights.
- The referring court takes particular note of Case C‑119/05 Lucchini [2007] ECR I‑6199, in which the Court of Justice held that Community law precludes the application of a provision of national law, such as Article 2909 of the Italian Civil Code, laying down the principle of res judicata, where the application of that provision prevents the recovery of State aid granted in breach of Community law. The referring court states that that judgment seems to illustrate a trend in the case-law of the Court towards considering the principle of res judicata to be relative and requiring it to be disapplied in order to uphold the primacy of provisions of Community law and to prevent conflict with those provisions. The national court refers in that regard to Case C‑126/97 Eco Swiss [1999] ECR I‑3055; Case C‑118/00 Larsy [2001] ECR I‑5063; Case C‑201/02 Wells [2004] ECR I‑723; and Case C‑453/00 Kühne & Heitz [2004] ECR I‑837.
- Since the levying of VAT plays a central role in the accrual of the European Community’s own resources, the referring court is uncertain whether the case-law of the Court requires the binding authority of a judgment which has acquired the force of res judicata by reason of national law to be disregarded. In the main proceedings, the application of Article 2909 of the Italian Civil Code could prevent the full implementation of the principle of combating abuse of rights, a principle which the Court has developed in relation to VAT as a means of ensuring that the Community VAT system is fully implemented. In that connection, the national court refers to Halifax and Others.
Questions
Does Community law preclude the application of a provision of national law, such as Article 2909 of the [Italian] Civil Code, laying down the principle of res judicata, where the application of that provision would lead to a result incompatible with Community law, thereby thwarting its application, even in areas other than State aid (in relation to which, see Case C-119/05 Lucchini SpA [2007] ECR I-0000) and, in particular, in matters relating to VAT and with respect to the misuse of rights in order to obtain undue tax savings, in particular in the light also of the rules of national law – as interpreted in the case-law of this Court – according to which, in tax disputes, where a giudicato esterno [a final judgment drawn up by another court in a case on the same subject] contains a finding on a fundamental issue common to other cases, it has binding authority as regards that issue, even if it was drawn up in relation to a different tax period?
AG Opinion
Community law precludes the application of a provision of national law, such as Article 2909 of the Codice Civile (Italian Civil Code), which seeks to lay down the principle of res judicata, in so far as the application of that provision, as interpreted by the national courts, prevents a national court, in a dispute such as that before the referring court on the payment of VAT, from determining correctly and in compliance with Community law the existence of an abusive practice, where a decision on that issue is already contained in a final judgment drawn up by another court in relation to a different tax period.
Decision
Community law precludes the application, in circumstances such as those of the case before the referring court, of a provision of national law, such as Article 2909 of the Italian Civil Code, in a dispute concerning value added tax and relating to a tax year for which no final judicial decision has yet been delivered, to the extent that it would prevent the national court seised of that dispute from taking into consideration the rules of Community law concerning abusive practice in the field of value added tax.
Summary
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