Notice for the OJ

 

Action brought on 6 June 2003 by the Commission of the European Communities against the French Republic

    (Case C-243/03)

An action against the French Republic was brought before the Court of Justice of the European Communities on 6 June 2003 by the Commission of the European Communities, represented by E. Traversa, acting as Agent, with an address for service in Luxembourg.

The Commission of the European Communities claims that the Court should:

1.declare that by introducing a special rule limiting the deductibility of VAT on the purchase of capital goods on the ground that they were financed by subsidies, the French Republic has failed to fulfil its obligations under Community law, and in particular Articles 17 and 19 of the Sixth Council Directive of May 1977, as amended, on the harmonisation of the laws of the Member States relating to turnover taxes ( Common system of value added tax: uniform basis of assessment; ¹

2.order the French Republic to pay the costs.

Pleas in law and main arguments

Articles 17 to 20 of the Sixth Directive establish the scheme for the right of taxable persons to deduct VAT. Taxable persons who carry out transactions giving rise to the right to deduct and at the same time transactions not giving rise to that right may deduct from the amount of the tax payable by them on taxed transactions the amount of the tax which they have paid on purchases of goods or supplies of services used, within the limit of a proportion calculated according to the procedures defined in Article 19.

The French legislation provides for a limit on the deduction of VAT payable on assets financed by subsidies in certain conditions not provided for in the Sixth Directive. The system established by the French legislation for mixed taxable persons precludes entitlement to deduct the VAT paid on the purchase of capital goods to the extent of the proportion of that purchase financed by a subsidy, if the proportion thus financed is not reflected in the price of the taxable transactions. This exclusion, which concerns purchases of goods assigned to activities coming within the scope of the directive, takes affect before any application of the proportion of deduction and reduces the amount of VAT to which that proportion is applied, where appropriate, for the purpose of calculating the deductible VAT. However, derogations from the right to deduct are permitted only in the cases expressly provided for by the Sixth Directive. The French Government cannot rely on Article 2 of First Council Directive 67/227/EEC of 11 April 1967 on the harmonisation of legislation of Member States concerning turnover taxes, which provides that VAT is chargeable after deduction of the amount of VAT borne directly by the various costs components, to justify such limitation of the right to deduct.

It also appears that the French authorities apply the same limitation of deduction to taxable persons who carry out only transactions giving rise to the right to deduct.

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¹ - (OJ 1977 L 145, p. 1.