Flashback on ECJ cases C-131/91 (“K” Line Air Service Europe BV v Eulaerts NV and Belgian State) – Belgian Minimum VAT Assessment on Cars Invalid

On July 9, 1992, the ECJ issued its decision in the case C-131/91 (“K” Line Air Service Europe BV v Eulaerts NV and Belgian State).

Context: Tax provisions ° Harmonization of laws ° Turnover taxes ° Common system of value added tax ° Basis of assessment ° Sale of second-hand cars between taxable persons ° National system setting aside the basis of assessment under the Sixth Directive in favour of a minimum basis ° Not permissible

Summary

Background of the Case: The Rechtbank van Eerste Aanleg, Brussels, referred a question to the Court of Justice of the European Union (CJEU) concerning the interpretation of the Sixth Council Directive 77/388/EEC on VAT and whether Belgian legislation setting a minimum basis of assessment for second-hand cars is consistent with this directive.
Belgian Legislation on VAT: Belgian law, specifically Royal Decree No 17, established a minimum basis of assessment for VAT on second-hand cars, which differed from the actual sales price agreed between buyer and seller, leading to a dispute about the compatibility of this national legislation with the Sixth Directive.
Issue Raised: “K” Line Air Service Europe BV sold a second-hand car and calculated VAT based on the agreed price. The Belgian tax authorities, however, demanded additional VAT based on the minimum assessment, which “K” Line paid and then sought reimbursement from the buyer, Eulaerts NV, who argued that the minimum basis of assessment was contrary to the Sixth Directive.
CJEU Ruling: The CJEU ruled that the Sixth Directive precludes national legislation that imposes a minimum basis of assessment for VAT on second-hand cars that differs from the actual sale price. The Court found that such measures are not authorized under Article 27 of the Directive and do not meet the requirements for preventing tax evasion or avoidance.
Implications: The ruling clarifies that VAT for second-hand goods must be based on the actual consideration received and not on a predefined minimum value, ensuring compliance with the uniform basis of assessment established by the Sixth Directive. The decision reinforces the principle that national measures must align with EU VAT rules.

Article in the EU VAT Directive

Article 11A(1)(a) of the Sixth Directive

The taxable amount within the country is, in respect of supplies of goods, everything which constitutes the consideration which has been or is to be obtained by the supplier from the purchaser.

Facts

The case-file shows that in 1987 “K” Line, the plaintiff in the main proceedings, sold a used car to Eulaerts, the first defendant in the main proceedings. Both companies are taxable persons for VAT purposes.
“K” Line sent an invoice for the price of the car, namely the price agreed between seller and purchaser, and the VAT calculated on the basis of that price. The invoice was settled. In the course of an inspection, the tax authorities noted that under the relevant Belgian legislation VAT should have been calculated by reference to the minimum basis of assessment for second-hand cars (namely 55% of the list price), and claimed from “K” Line in addition the VAT payable on the difference between the price and the minimum basis of assessment. That amount was paid by “K” Line.
“K” Line thereupon claimed the amount of the additional VAT from Eulaerts who refused to pay it, however, on the ground that the introduction of a minimum basis of assessment was contrary to the provisions of the Sixth Directive. “K” Line therefore instituted proceedings against Eulaerts before the Rechtbank van Eerste Aanleg for reimbursement of the additional amount of VAT. Subsequently, the Belgian State was also joined to the proceedings with a view to securing reimbursement of that sum should the relevant legislation be found to be contrary to the Sixth Directive.

Questions

Are the provisions of Royal Decree No 17 of 20 July 1970, as amended by Royal Decree No 17 of 20 December 1984, enacted in implementation of Articles 35 and 52 of the VAT Code, contrary to Articles 11 and 27 of the Sixth VAT Directive and to the principle of the free movement of goods, as provided for in Articles 9, 10 and 11 of the EEC Treaty?

AG Opinion

Value added tax should be considered an integral part of a general system of internal taxation within the meaning of Article 95 of the EEC Treaty. It follows that the compatibility with Community law of national VAT rules must be assessed in the light of that article and not of Articles 9 et seq. of the Treaty.
Article 32 of the Sixth Council Directive (77/388/EEC) of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment — must be interpreted as meaning that it does not apply to supply of goods, even used goods, by a taxable person to another taxable person.
Article 27 of that same directive must be interpreted as meaning that the derogation which it contains does not render compatible with Community law national rules whose provisions are disproportionate in relation to the ratio legisof the derogation
Article 11 of the Sixth Directive is at variance with rules which, in the case of the supply of a used vehicle by a taxable person to another taxable person, apply a rate of VAT calculated using a flat-rate basis of assessment based on a percentage of the list price.

Decision

The Sixth Council Directive of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes ° Common system of value added tax: uniform basis of assessment ° is to be interpreted as precluding national legislation laying down, in respect of the sale of second-hand cars between taxable persons, a minimum basis of assessment for VAT which is different from that provided for by Article 11 of the directive.

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