On December 12, 2000, the ECJ issued its decision in the case C-359/97 (Commission v United Kingdom).
Context: Failure to fulfil obligations – Article 4(5) of the Sixth VAT Directive – Access to roads on payment of a toll – Failure to levy VAT – Regulations (EEC, Euratom) Nos 1552/89 and 1553/89 – Own resources accruing from VAT
Summary
- Failure to Levy VAT on Tolls: The United Kingdom did not subject tolls for the use of toll roads and toll bridges to VAT, contrary to Articles 2 and 4 of the Sixth Council Directive 77/388/EEC.
- Economic Activity: Providing access to roads on payment of a toll is considered an economic activity and should be subject to VAT as it constitutes a supply of services for consideration.
- Public Law Bodies Exemption: The exemption under Article 4(5) of the Sixth Directive applies only when the activity is carried out by a body governed by public law acting as a public authority, which was not sufficiently proven for all cases by the UK.
- Failure to Make Available Own Resources: The UK also failed to make available to the Commission the relevant amounts of VAT own resources, which includes interest for late payment, thus breaching Community rules.
- Legal and Financial Consequences: The Court dismissed the UK’s claim to limit the judgment’s effects in time, emphasizing that the UK should have taken measures to avoid adverse effects, and ordered the UK to bear the costs of the proceedings.
Article in the EU VAT Directive
Article 2 of the Sixth Directive provides as follows:
‘The following shall be subject to value added tax:
- 1. the supply of goods or services effected for consideration within the territory of the country by a taxable person acting as such;
- 2. the importation of goods.‘
Article 4(1), (2) and (5) of the Sixth Directive:
- 1. ”Taxable person” shall mean any person who independently carries out in any place any economic activity specified in paragraph (2), whatever the purpose or results of that activity.
- 2. The economic activities referred to in paragraph (1) shall comprise all activities of producers, traders and persons supplying services including mining and agricultural activities and activities of the professions. The exploitation of tangible or intangible property for the purpose of obtaining income therefrom on a continuing basis shall also be considered an economic activity.
- …
- 5. States, regional and local government authorities and other bodies governed by public law shall not be considered taxable persons in respect of the activities or transactions in which they engage as public authorities, even where they collect dues, fees, contributions or payments in connection with these activities or transactions.
- However, when they engage in such activities or transactions, they shall be considered taxable persons in respect of these activities or transactions where treatment as non-taxable persons would lead to significant distortions of competition.
- In any case, these bodies shall be considered taxable persons in relation to the activities listed in Annex D, provided they are not carried out on such a small scale as to be negligible.
- Member States may consider activities of these bodies which are exempt under Article 13 or 28 as activities which they engage in as public authorities.‘
It is common ground that providing access to roads and related infrastructures (hereinafter ‘roads‘) on payment of a toll is not one of the activities listed in Annex D to the Sixth Directive.
Article 13B of the Sixth Directive (Article 135(2) of the EU VAT Directive 2006/112/EC)
Without prejudice to other Community provisions, Member States shall exempt the following under conditions which they shall lay down for the purpose of ensuring the correct and straightforward application of the exemptions and of preventing any possible evasion, avoidance or abuse:
…
(b) the leasing or letting of immovable property excluding:
- 1. the provision of accommodation, as defined in the laws of the Member States, in the hotel sector or in sectors with a similar function, including the provision of accommodation in holiday camps or on sites developed for use as camping sites;
- 2. the letting of premises and sites for parking vehicles;
- 3. lettings of permanently installed equipment and machinery;
- 4. hire of safes.
Member States may apply further exclusions to the scope of this exemption.
Facts
- Action by the Commission: On 21 October 1997, the Commission of the European Communities brought an action against the United Kingdom under Article 169 of the EC Treaty (now Article 226 EC). The action claimed that the UK failed to subject tolls for using toll roads and toll bridges to VAT, violating Articles 2 and 4 of the Sixth Council Directive 77/388/EEC.
- Commission’s Arguments: The Commission argued that providing access to roads for tolls is an economic activity and should be taxed under VAT. They also contended that the UK failed to make the corresponding amounts available as VAT own resources to the Commission, including interest for late payment.
- UK’s Defense: The UK argued that tolls are exempt under Article 4(5) as the activities are conducted by public bodies acting as public authorities. They also claimed that the long pre-litigation phase (10 years) made the case inadmissible and that the financial consequences of a judgment should be limited in time.
Questions
The question presented to the Court of Justice of the European Communities was whether the United Kingdom had failed to fulfill its obligations under the Sixth Council Directive 77/388/EEC and the EC Treaty by:
- Not Subjecting Tolls to VAT: Whether the UK failed to subject tolls collected for the use of toll roads and toll bridges to value-added tax (VAT), in violation of Articles 2 and 4(1), (2), and (5) of the Sixth Council Directive 77/388/EEC.
- Failing to Make VAT Own Resources Available: Whether the UK failed to make available to the Commission the amounts corresponding to the VAT that should have been levied on those tolls, along with interest for late payment, as required under Regulations (EEC, Euratom) No 1552/89 and No 1553/89 concerning the collection of own resources accruing from VAT.
The Court was asked to determine if the UK’s actions constituted a failure to fulfill its obligations under the relevant European Community laws and directives, and if so, to issue a declaration to that effect.
AG Opinion
For the foregoing reasons I therefore propose that the Court should rule as follows:
1. In not subjecting tolls for the use of existing toll roads and toll bridges in the United Kingdom to value added tax, contrary to Articles 2 and 4 of the Sixth Council Directive 77/388/EEC of 17 May 1977 and by therefore failing to make available to the Commission the relevant amounts of own resources, the United Kingdom has failed to fulfil its obligations under the EC Treaty; however, the Commission is entitled to collect the own resources retrospectively and claim interest for late payment only as from 1994 (the financial year).
2. The United Kingdom shall bear the costs of the proceedings.
Decision
1. Declares that by failing to subject to value added tax tolls collected for the use of toll roads and toll bridges as consideration for the service supplied to users, where that service is not provided by a body governed by public law within the meaning of Article 4(5) 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, and by failing to make available to the Commission of the European Communities as own resources accruing from value added tax the amounts corresponding to the tax which should have been levied on those tolls together with interest for late payment, the United Kingdom of Great Britain and Northern Ireland has failed to fulfil its obligations under Articles 2 and 4 of that directive and under Council Regulation (EEC, Euratom) No 1553/89 of 29 May 1989 on the definitive uniform arrangements for the collection of own resources accruing from value added tax and Council Regulation (EEC, Euratom) No 1552/89 of 29 May 1989 implementing Decision 88/376/EEC, Euratom on the system of the Communities’ own resources;
2. Orders the United Kingdom of Great Britain and Northern Ireland to bear the costs.
Source
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