Flashback on ECJ Cases – C-381/01, C-495/01, C-144/02, C-463/02 (Commission vs Italy, Germany, Finland, Sweden) – Subsidy directly related to price

The three conditions for inclusion of a subsidy in the taxable amount are satisfied. It is clear from Regulation No 603/95 that only the undertaking which processes fresh fodder can be granted aid and not producers of fresh fodder, and that the processing undertaking both enters into a sales agreement with undertakings which consume dried fodder (supply of goods) and processing agreements with producers of fresh fodder (supply of services). In the present case there is no doubt that the intervention body which pays the aid in accordance with Regulation No 603/95 is a third person in relation to the processing undertaking and the buyer and that this intervention takes place in accordance with a procedure for the award of public subsidies.

Article 11 A point 1(a) of the Sixth Directive would be interpreted excessively narrowly if only types of aid which are calculated on the basis of the product price are included in the taxable amount for VAT. By its general reference to “subsidies directly linked to the price of [the taxable] supplies”, the Community legislature actually intended to include in the taxable amount for VAT all aid which is directly linked to the price of the goods or services, ie the subsidies which directly influence the size of the supplier’s remuneration. Those subsidies must, in turn, be directly linked to or have a causal connection with precisely indicated or quantifiable supplies of goods or services, ie the aid paid, if and to the extent that the goods or services are actually sold on the market. That is why the subsidy has a direct influence on the product’s sale price and that clearly shows the underlying idea that subsidies should be included in the taxable amount for VAT, on the basis of a non-restrictive interpretation of Article 11 A point 1(a) of the Sixth Directive and in accordance with the general purpose of the article, namely taxation of all the remuneration paid in whole or in part by a person, no matter who, and which is actually received by the supplier as a consequence of the sale of the goods or services.

• On 4 November 1998, having found that the Italian Republic was not levying VAT on aid paid under Regulation No 603/95 and taking the view that this was contrary to Article 11(A)(1)(a) of the Sixth Directive, the Commission sent the Italian Republic, in accordance with the procedure laid down in Article 169 of the EC Treaty (now Article 226 EC), a letter of formal notice calling on it to submit its observations within two months.
• Since it did not receive a reply to that letter, the Commission, on 30 July 1999, sent a reasoned opinion to the Italian Republic and required it to take the measures necessary to comply with the opinion within two months.
• The Italian Government replied by letter of 28 September 1999. It challenged the basis of the Commission’s complaints, stating inter alia that Community subsidies to undertakings processing fodder are not directly linked to the price of drying operations and therefore are not to be included in the taxable amount for VAT, as defined in Article 11(A)(1)(a) of the Sixth Directive.
• Against that background, the Commission decided to bring this action.
• By order of the President of the Court of Justice of 29 April 2003, the Republic of Finland and the Kingdom of Sweden were granted leave to intervene in support of the form of order sought by the defendant, pursuant to Article 93(7) of the Rules of Procedure, that is to say solely by way of observations during the oral procedure.

C-495/01

• On 18 November 1998, having found that the Republic of Finland was not levying VAT on aid paid under Regulation No 603/95 and taking the view that this was contrary to Article 11(A)(1)(a) of the Sixth Directive, the Commission sent the Republic of Finland, in accordance with the procedure laid down in Article 169 of the EC Treaty (now Article 226 EC), a letter of formal notice calling on it to submit its observations within two months.
• By letter of 8 January 1999, the Finnish Government responded, stating that aid for dried fodder was a production subsidy, which had no impact on the consideration paid by purchasers of dried fodder. In those circumstances, it was not in breach of Article 11 of the Sixth Directive in failing to levy VAT on that aid.
• On 19 July 1999, the Commission sent the Republic of Finland a reasoned opinion and called on it to take the measures necessary to comply with the opinion within two months. It maintained that the objective of the aid at issue was to enable the processing undertaking to place dried fodder on the market at a price lower than the cost price: in other words that dried fodder would be provided at a higher price in the absence of aid.
• On 9 September 1999, the Finnish Government, in response to the reasoned opinion, disputed that the aid and the sale price of the fodder were directly linked. The price obtained for the processed fodder varied as a function of the market, whilst the aid, paid per tonne, remained unchanged.
• In those circumstances, the Commission decided to bring this action.
• By order of the President of the Court of Justice of 29 May 2002, the Federal Republic of Germany and the Kingdom of Sweden were granted leave to intervene in support of the form of order sought by the defendant.

C-144/02

• On 20 November 1998, having found that the Federal Republic of Germany was not applying VAT to aid paid under Regulation No 603/95 and taking the view that this was contrary to Article 11(A)(1)(a) of the Sixth Directive, the Commission sent Germany, in accordance with the procedure laid down in Article 169 of the EC Treaty (now Article 226 EC), a letter of formal notice calling on it to submit its observations within two months.
• By letter of 25 March 1999, the German Government replied that a subsidy is to be included in the taxable amount only when it forms a part of the consideration, which is provided by a third party. For that to be the case here, there would have to be a direct link between the grant of the subsidy and the supplies of dried fodder made by the producers to their buyers. The aid granted in respect of dried fodder would have to be connected to the various supplies thereof. However, it is impossible to connect the aid at issue to the sale of a specific quantity of dried fodder.
• On 15 September 1999, the Commission sent a reasoned opinion to the Federal Republic of Germany and called on it to adopt the measures necessary to comply with the opinion within two months. In addition, it pointed out that, in the absence of aid, dried fodder would be sold at a higher price, the full amount of which would be subject to VAT.
• Since the German Government did not respond to the reasoned opinion, the Commission decided to bring the present action.
• By order of the President of the Court of 16 September 2002, the Republic of Finland and the Kingdom of Sweden were granted leave to intervene in support of the form of order sought by the defendant.

C-463/02

1. Dismisses the action;
2. Orders the Italian Republic to bear its own costs;
3. Orders the Republic of Finland and the Kingdom of Sweden to bear their own costs.

C-495/01

1. Dismisses the action;
2. Orders the Commission of the European Communities to pay the costs;
3. Orders the Federal Republic of Germany and the Kingdom of Sweden to bear their own costs

C-144/02

1. Dismisses the action;
2. Orders the Commission of the European Communities to pay the costs;
3. Orders the Republic of Finland and the Kingdom of Sweden to bear their own costs.

C-463/02