The European Court of Justice (First Chamber) ruled that, in the context of a contract of sale providing that, in accordance with the buyer's intended use of the vehicle, the dealer would supply it registered and for a price which included the registration duty on new motor vehicles paid before supplying the vehicle, that duty, for which the occurrence triggering liability was not the supply of the vehicle but its first registration in national territory, was not covered by the concept of taxes, duties, levies and charges within the meaning of art. 11(A)(2)(a) of Council Directive 77/388 (the sixth directive). Such a duty corresponded to an amount received by the taxable person from the purchaser of the vehicle as repayment for expenses paid out in the name and for the account of the latter within the meaning of art. 11(A)(3)(c).

Facts

In January 1999, the taxpayer bought a new car intended for the use of its director. As was usual in Denmark, when a motor vehicle was purchased from an authorised dealer, the dealer dealt with registration of the vehicle in the purchaser's name and the provision of number plates before supplying the car. The purchase price of the vehicle comprised: (1) the amount charged by the dealer to the purchaser, excluding VAT and registration duty; (2) VAT at the standard rate of 25 per cent on the price of the vehicle; and (3) registration duty on the sum of (1) and (2) subject to certain adjustments and deductions. As it considered that the method of calculation was contrary to the provisions of art. 11(A) of the sixth directive and that VAT had to be based on the total price of the vehicle including the registration duty, the taxpayer brought an action before the Eastern Regional Court. Depending on whether VAT was calculated employing the method used by the Danish tax authorities or in accordance with the method advocated by the taxpayer, there was a difference in the amount of the total price of the vehicle. The national court stayed the proceedings and made a reference to the European Court of Justice for a preliminary ruling.

Issue

Whether a registration duty was to be included in the taxable amount as a duty within the meaning of art. 11(A)(2)(a) of the sixth directive when a dealer supplied a vehicle already registered for a price including that duty in accordance with the purchase agreement for that vehicle and the purchaser's intended use of it or, on the contrary, be excluded from that amount in accordance with art. 11(A)(3)(c).

Decision

The European Court of Justice (First Chamber) (ruling accordingly) said that, in accordance with art. 11(A)(2)(a), taxes, duties, levies and charges, excluding the VAT itself had to be included in the taxable amount. In order for such items to fall within the scope of the basis of assessment, even though they did not represent any added value and did not constitute the financial consideration for the supply of the goods, they had to be directly linked to that supply (see Naturally Yours Cosmetics Ltd v C & E Commrs (Case 230/87) [1988] BTC 5,260; [1988] ECR 6365, para. 11 and 12; Empire Stores Ltd v C & E Commrs (Case C-33/93) [1994] BTC 5,260; [1994] ECR I-2329, para. 12; and Bertelsmann AG v Finanzamt Wiedenuck (Case C-380/99)[2001] BTC 5,357; [2001] ECR I-5163, para. 17 and 18).

In the present case, the occurrence that triggered liability to the registration duty was not the supply of the vehicle but its first registration in Danish territory. That analysis was borne out by the fact that a new car bought for a purpose other than being put into circulation within the areas in which the Danish law on road traffic applied (for example, a collector's vehicle, a vehicle intended for use exclusively on private ground or a vehicle destined for transfer outside the national territory) did not give rise to the levying of the registration duty in spite of a supply taking place within that territory. Furthermore, the registration duty was due in certain situations in which there was no supply within Danish territory, such as that of a vehicle transferred by its owner to Denmark in connection with moving house and intended for use on public roads in that member state or that of a vehicle rebuilt after a road accident and again employed for such use.

Contrary to the submission made by the taxpayer, the link between the levying of the duty and registration of the vehicle could not, in those circumstances, be regarded as meeting only the national authorities’ aim of ensuring effective control over the levying of a duty which was, in reality, linked to the supply. It reflected the real nature of that duty and the occurrence that triggered liability to it, as a duty directly related to registration, liability to which depended on presentation of the motor vehicle for registration with a view to its use on public roads in Denmark. It was true that, when an authorised dealer contractually undertook to supply a vehicle after having had it registered at the time of purchase of a vehicle from such a dealer, the point at which VAT became chargeable was subsequent to that at which the registration duty fell due and registration duty was included in the amount invoiced to the purchaser at the time that vehicle was supplied. However, that circumstance could not conceal the existence of a conceptual difference between the respective occurrences triggering liability to the registration duty and to VAT, rendering the former independent of the latter. The same was true of the argument that national legislation on price labelling required dealers to state the total price of the vehicle including registration duty in their advertising.

Accordingly, when the registration duty had been paid by the dealer on account of a contractual obligation to supply to the purchaser a vehicle which was registered in the purchaser's name, the invoicing of that duty to the purchaser corresponded to a repayment for expenses paid out by the dealer in the name and for the account of that purchaser and not to consideration for the goods supplied. Such a duty could therefore be regarded only as an element in the dealer's books which constituted a suspense account within the meaning of art. 11(A)(3)(c).

Under a contract of sale such as that at issue, the registered dealer who paid the registration duty before supplying the vehicle did not do so in his own interest but in that of the purchaser who wished to take possession of a new vehicle registered in his name and appropriate for driving legally on public roads in Denmark. The registered dealer was, in such a case, the person responsible for payment of the registration duty to the competent tax authorities. But the fact remained that the person liable for payment of duty was the purchaser of the vehicle, as was shown by the fact that the dealer subsequently passed on to that purchaser the amount of the duty he had paid. Moreover, subject to certain exceptions, the taxation of motor vehicles had not been harmonised and differed considerably from one member state to another. Member states were therefore free to exercise their powers of taxation in that area provided they did so in compliance with Community law.

Consequently, in view of art. 11(A)(3)(c) of the sixth directive, a member state might impose a duty on new motor vehicles for which the occurrence triggering liability to the duty was the first registration of the vehicle in the territory of that state and the person responsible for payment was the purchaser of the vehicle and which, when it was paid by a dealer on account of a contractual obligation to supply the vehicle registered in the purchaser's name, corresponded to an amount advanced by the dealer in the name and for the account of that purchaser.

European Court of Justice (First Chamber). Judgment delivered 1 June 2006.