JUDGMENT OF THE COURT (Fifth Chamber)
18 December 1997 (1)
(VAT Supply of services National compensation for the extensification ofpotato production)
In Case C-384/95,
REFERENCE to the Court under Article 177 of the EC Treaty by theFinanzgericht des Landes Brandenburg, Germany, for a preliminary ruling in theproceedings pending before that court between
Landboden-Agrardienste GmbH & Co. KG
and
Finanzamt Calau
on the interpretation of Articles 6(1), 11(A)(1)(a) and 12(3)(a) of and Annex H tothe Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonization ofthe laws of the Member States relating to turnover taxes Common system ofvalue added tax: uniform basis of assessment (OJ 1977 L 145, p. 1),
THE COURT (Fifth Chamber),
composed of: C. Gulmann (Rapporteur), President of the Chamber, M. Wathelet,J.C. Moitinho de Almeida, J.-P. Puissochet and L. Sevón, Judges,
Advocate General: F.G. Jacobs,
Registrar: H. von Holstein, Deputy Registrar,
after considering the written observations submitted on behalf of:
the German Government, by Ernst Röder, Ministerialrat in the FederalMinistry of Economic Affairs, and Bernd Kloke, Oberregierungsrat in thesame ministry, acting as Agents, and
the Commission of the European Communities, by Jürgen Grunwald, LegalAdviser, acting as Agent,
having regard to the Report for the Hearing,
after hearing the oral observations of the Finanzamt Calau, represented by AndreasDamm, Regierungsdirektor in the Ministry of Finance of the Land of Brandenburg,acting as Agent; the German Government, represented by Ernst Röder, assistedby Ferdinand Huschens, Oberamtsrat in the Federal Ministry of Finance, acting asAgent; and the Commission, represented by Jürgen Grunwald, at the hearing on15 May 1997,
after hearing the Opinion of the Advocate General at the sitting on25 September 1997,
gives the following
Judgment
- 1.
- By order of 8 November 1995, received at the Court on 8 December 1995, theFinanzgericht des Landes Brandenburg (Finance Court of the Land ofBrandenburg), Germany, referred to the Court for a preliminary ruling underArticle 177 of the EC Treaty three questions on the interpretation of Articles 6(1),11(A)(1)(a) and 12(3)(a) of and Annex H to the Sixth Council Directive77/388/EEC of 17 May 1977 on the harmonization of the laws of the MemberStates relating to turnover taxes Common system of value added tax: uniformbasis of assessment (OJ 1977 L 145, p. 1; 'the Sixth Directive).
- 2.
- Those questions were raised in proceedings between Landboden-AgrardiensteGmbH & Co. KG ('Landboden-Agrardienste) and the Finanzamt Calau (the TaxOffice, Calau; 'the Finanzamt) concerning the question whether compensation for
the extensification of potato production paid under a national scheme is subject toturnover tax.
- 3.
- On 1 January 1991 Landboden-Agrardienste became the successor in title toLandwirtschaftliche Produktionsgenossenschaft (P) Bronkow.
- 4.
- In 1990 the latter undertaking had received compensation from the KreisverwaltungCalau, Amt für Ernährung, Landwirtschaft und Forsten (Food, Agriculture andForestry Office of the Calau local authority) pursuant to the order of 13 July 1990promoting the extensification of agricultural production. The compensation,totalling DM 348 660, was granted in return for a 20% reduction in its annualpotato production. In its tax declaration for 1990 it treated that compensation asnot subject to turnover tax.
- 5.
- Following an investigation, however, the Finanzamt considered that thecompensation should have been included as taxable turnover; on 1 June 1992 itthus determined that additional tax was due and sent Landboden-Agrardienste anamended notice of assessment.
- 6.
- The application made by Landboden-Agrardienste for amendment of thatassessment was refused, so it brought proceedings before the Finanzgericht desLandes Brandenburg in which it contended that compensation for theextensification of potato production could not be regarded as paid under anexchange transaction. It pointed out in particular that it was impossible to identifya specific recipient of the service provided in return for the compensationpayments.
- 7.
- The Finanzgericht considered that the outcome of the case turned on theinterpretation of the Sixth Directive and therefore decided to stay the proceedingsand refer the following questions to the Court of Justice for a preliminary ruling:
'(1) Must a taxable farmer, who in 1990 extensified his potato production inBrandenburg (Federal Republic of Germany) to such an extent that at least20% of his potato crop was not harvested by him, be regarded as havingsupplied to a specific recipient a service within the meaning of Article 6(1)of the Sixth Council Directive of 17 May 1977 (77/388/EEC) on theharmonization of the laws of the Member States relating to turnover taxes?
(2) Does a subsidy paid for the extensification of potato production on the basisof the decree of 13 July 1990 promoting the extensification of agriculturalproduction constitute a cash payment taxable pursuant toArticle 11(A)(1)(a) of the Sixth Directive?
(3) If the answer to question 1 is in the affirmative:
Is the service supplied to be taxed at the reduced rate provided for by thefourth sentence of Article 12(3)(a) of the Sixth Directive, in conjunctionwith Annex H thereto?
- 8.
- By its first two questions, the national court essentially asks whether, on a properconstruction of Articles 6(1) and 11(A)(1)(a) of the Sixth Directive, an undertakinggiven by a farmer under a national compensation scheme not to harvest at least20% of his potato crop constitutes a supply of services for the purposes of the SixthDirective, so that compensation received for that purpose is subject to turnover tax.
- 9.
- Article 2(1) of the Sixth Directive states that 'the supply of goods or serviceseffected for consideration within the territory of the country by a taxable personacting as such is subject to VAT.
- 10.
- Article 6(1) provides:
'Supply of services shall mean any transaction which does not constitute a supplyof goods within the meaning of Article 5.
Such transactions may include inter alia:
...
obligations to refrain from an act or to tolerate an act or situation,
...
- 11.
- Under Article 11(A)(1)(a) the taxable amount is to be, 'in respect of supplies ofgoods and services ..., everything which constitutes the consideration which has beenor is to be obtained by the supplier from the purchaser, the customer or a thirdparty for such supplies including subsidies directly linked to the price of suchsupplies.
- 12.
- In Case C-215/94 Mohr v Finanzamt Bad Segeberg [1996] ECR I-959, the Courtruled on the question whether an undertaking to discontinue milk production givenby a farmer under a Community regulation fixing compensation for the definitivediscontinuation of such production constitutes a supply of services for the purposesof the Sixth Directive.
- 13.
- The Court answered that question in the negative, noting that VAT was a generaltax on the consumption of goods and services and that, in a case such as the onebefore it, there was no consumption as envisaged in the Community VAT system.It held that, by compensating farmers who undertook to cease their milkproduction, the Community did not acquire goods or services for its own use butacted in the common interest of promoting the proper functioning of theCommunity milk market. In those circumstances, the undertaking given by a
farmer that he would discontinue his milk production did not entail either for theCommunity or for the competent national authorities any benefit which wouldenable them to be considered consumers of a service and therefore did notconstitute a supply of services within the meaning of Article 6(1) of the SixthDirective (paragraphs 19 to 22).
- 14.
- The German Government and the Commission rightly agree that the mainproceedings in Mohr and in this case must both have the same outcome as regardsthe interpretation of the Sixth Directive. It is irrelevant that in Mohr thecompensation originated from the Community while in this case it originates fromthe Member State. In both situations it is necessary to decide whether anundertaking given by a farmer to reduce production in return for compensationunder an intervention scheme constitutes a supply of services for the purposes ofthe Sixth Directive, with the result that the compensation must be subject to VAT.
- 15.
- However, while the Commission takes the view, as it did in Mohr, that there is nosupply of services for the purposes of the Sixth Directive in such situations, theGerman Government and the Finanzamt challenge the interpretation given in thejudgment in Mohr.
- 16.
- They acknowledge that the compensation at issue in the main proceedings cannotbe regarded as consideration for a supply of goods falling within Article 11(A)(1)(a)of the Sixth Directive but consider that it is caught by that directive asconsideration for the supply of a service. In their view, a farmer's act of limitingproduction or refraining from marketing certain products is a service in its ownright, separate from the supply of products to consumers and entailing separateconsideration. By requiring, in Mohr, that the public authority must acquire goodsor services for its own use, the Court added a condition not laid down in the SixthDirective.
- 17.
- They state in particular that the fact that VAT is a general tax on consumptioncannot be used as a basis for determining whether there is a supply of services. For that purpose recourse should be had solely to the wording of Article 6 of theSixth Directive, from which it is apparent that any transaction which does notconstitute a supply of goods must be regarded as a supply of services when it iseconomic in nature and does not fall exclusively within the private sphere. Thequestion of who benefits from a supply of services or of its economic impact istherefore entirely irrelevant to the meaning of that term.
- 18.
- According to the German Government and the Finanzamt, this case is concernedwith an exchange transaction, because the farmer is paid for a specific service. Thelink between the service supplied and the compensation is so close that theattachment between the payment and the service cannot be regarded as purelytechnical. Since the public authority pays compensation only if production isreduced, the related obligation constitutes a supply of services for consideration.
Nor does it really matter whether the recipient of the service is the public at largeor the authority as representative of the public at large, since that is not one of thefactors laid down by Articles 2, 6 and 11 of the Sixth Directive.
- 19.
- As the Advocate General has pointed out in paragraphs 21 to 29 of his Opinion,the arguments put forward by the German Government and the Finanzamt do notundermine the reasoning adopted by the Court in Mohr.
- 20.
- Contrary to their submissions, that reasoning does not mean that a payment madeby a public authority in the common interest cannot constitute consideration for asupply of services for the purposes of the Sixth Directive, or that the concept of asupply of services depends on the use made of a service by the person who paysfor it. Only the nature of the undertaking given is to be taken into consideration:for such an undertaking to be covered by the common system of VAT it must implyconsumption.
- 21.
- Thus, in order to determine whether a supply of services is caught by the SixthDirective, it is necessary to examine the transaction in the light of the objectivesand nature of the common system of VAT.
- 22.
- In that regard, Article 2 of the First Council Directive 67/227/EEC of 11 April 1967on the harmonization of legislation of Member States concerning turnover taxes(OJ, English Special Edition 1967, p. 14) provides:
'The principle of the common system of value added tax involves the applicationto goods and services of a general tax on consumption exactly proportional to theprice of the goods and services, whatever the number of transactions which takeplace in the production and distribution process before the stage at which tax ischarged.
On each transaction, value added tax, calculated on the price of the goods orservices at the rate applicable to such goods or services, shall be chargeable afterdeduction of the amount of value added tax borne directly by the various costcomponents.
...
- 23.
- A transaction such as that at issue in the main proceedings, namely the undertakinggiven by a farmer to reduce production, does not fall within the scope of thatprinciple because it does not give rise to any consumption. As the AdvocateGeneral has pointed out in paragraph 26 of his Opinion, the farmer does notprovide services to an identifiable consumer or any benefit capable of beingregarded as a cost component of the activity of another person in the commercialchain.
- 24.
- Since the undertaking given by a farmer to reduce production does not entail eitherfor the competent national authorities or for other identifiable persons any benefitwhich would enable them to be considered to be consumers of a service, it cannotbe classified as a supply of services within the meaning of Article 6(1) of the SixthDirective.
- 25.
- The answer to the first two questions referred to the Court for a preliminary rulingmust therefore be that, on a proper construction of Articles 6(1) and 11(A)(1)(a)of the Sixth Directive, an undertaking given by a farmer under a nationalcompensation scheme not to harvest at least 20% of his potato crop does notconstitute a supply of services for the purposes of the Sixth Directive. Consequently, compensation received for that purpose is not subject to turnovertax.
- 26.
- In view of the answer given to the first two questions there is no need to considerthe third question.
Costs
- 27.
- The costs incurred by the German Government and by the Commission of theEuropean Communities, which have submitted observations to the Court, are notrecoverable. Since these proceedings are, for the parties to the main proceedings,a step in the action pending before the national court, the decision on costs is amatter for that court.
On those grounds,
THE COURT (Fifth Chamber),
in answer to the questions referred to it by the Finanzgericht des LandesBrandenburg by order of 8 November 1995, hereby rules:
On a proper construction of Articles 6(1) and 11(A)(1)(a) of the Sixth CouncilDirective 77/388/EEC of 17 May 1977 on the harmonization of the laws of theMember States relating to turnover taxes Common system of value added tax:uniform basis of assessment, an undertaking given by a farmer under a nationalcompensation scheme not to harvest at least 20% of his potato crop does notconstitute a supply of services for the purposes of that directive. Consequently,compensation received for that purpose is not subject to turnover tax.
| GulmannWathelet Moitinho de Almeida Puissochet Sevón |
Delivered in open court in Luxembourg on 18 December 1997.
R. Grass
C. Gulmann
Registrar
President of the Fifth Chamber