The European Court of Justice (Third Chamber) ruled that under art. 27(5) of Directive 77/388 (‘the sixth directive’) failure to observe the period for notification did not constitute a material procedural defect capable of rendering inapplicable a derogating measure which was notified late.

Facts

The taxpayer operated a manufactured tobacco wholesale business in Luxembourg in which it was an authorised warehouse keeper. On 6 October 1998, it submitted to the Amsterdam tax and customs authorities two requests for excise stamps for manufactured tobacco. On 9 October 1998, the tax inspector charged the amounts due by the taxpayer in respect of those two transactions, by way of VAT. The stamps were never received and by letter of 23 November 1998, the taxpayer informed the tax inspector that, as the stamps had not been delivered to it, they could not be used.

The inspector treated that letter as a request for the offsetting or reimbursement of the VAT due or paid by the taxpayer for the stamps. The inspector refused that request and a complaint lodged by the taxpayer against that decision was also dismissed. The appeal against the dismissal of that complaint, brought before the Regional Court of Appeal, Amsterdam, was also declared unfounded. The court held that the applicant had failed to establish with sufficient certainty that the stamps no longer existed or that the risk of their still being used was negligible and that, therefore, the stamps could not be regarded as lost. Thus it held that the request for reimbursement of the VAT should be dismissed.

The taxpayer appealed to the Supreme Court of the Netherlands. It maintained essentially that the special scheme for collecting VAT had not been notified to the Commission within the period prescribed in art. 27(5) of the sixth directive, and that it was therefore incompatible with that provision. Thus the court stayed the proceedings and made a reference to the European Court of Justice for a preliminary ruling.

Issue

Whether the late notification of the scheme to the Commission led to the same consequences as a failure to notify, i.e. that the scheme was not applicable to individuals relying on such a defect; and, even assuming that the lateness of the notification did not render the scheme inapplicable, whether it was compatible with the requirements of art. 27(1).

Decision

The European Court of Justice (Third Chamber) (ruling accordingly) said that a derogation from the sixth directive adopted without compliance with the duty of notification imposed on the member states by art. 27(2) could not be relied upon as against a taxable person. In the absence of notification, that measure could not be authorised by the Council in accordance with art. 27(1). However, in the present case, it was not a question of a new derogating measure which had to be authorised by the Council, but a special measure in existence on 1 January 1977 and which the member state wished to maintain, in accordance with art. 27(5), in spite of the implementation of that directive. The Netherlands Government therefore notified the Commission of its wish to maintain the scheme on 12 June 1979. Furthermore, in its first report to the Council of 14 September 1983 on the functioning of the common system of VAT, the Commission did not consider that that scheme was contrary to the criterion set out in art. 27(1), namely that the measures did not affect, except to a negligible extent, the amount of tax due at the final consumption stage.

Late notification of the derogating measure could not entail the same consequences as a failure to notify. Article 27(5) did not in fact impose any sanction in respect of the failure to comply with the time-limit for notification. Furthermore, the purpose of that notification was not to obtain the Commission's authorisation, but simply to enable it to become acquainted with the measure concerned and to evaluate it. In those circumstances, failure to comply with the time limit for notification could not be regarded as a material procedural defect capable of rendering inapplicable a derogating measure which was notified late. Accordingly, art. 27(5) meant that failure to observe the period for notification did not constitute a material procedural defect capable of rendering inapplicable a derogating measure which was notified late.

The national derogating measures referred to in art. 27(5), which were allowed ‘in order to simplify the procedure for charging the tax or to prevent certain types of tax evasion or avoidance’, had to be interpreted strictly. They might not derogate from the basis for charging VAT laid down in art. 11 of the sixth directive except within the limits strictly necessary for achieving that aim. They must also be necessary and appropriate to the realisation of the specific objective pursued and have the least possible effect on the objectives and principles of the sixth directive.

In the present case, the derogating scheme permitting VAT to be collected by means of tax stamps had the purpose and effect of simplifying the procedure for charging tax, which was effected, thanks to the derogating scheme, at a single stage in the supply chain for the products. Furthermore, that scheme applied the amount of the VAT due to the price of the products at the final consumption stage, in accordance with the requirements of art. 27(1).

In certain circumstances, such as the loss of products, their sale at a loss or unlawful sale at a price different from the retail price indicated on the tax stamps, the manufacturer might be obliged to pay an amount of VAT which was higher than that which would have resulted from the application of the ordinary Community system for levying VAT. However, the mere possibility that such events might take place was not sufficient to justify the conclusion that the derogating rules for collecting VAT by means of tax stamps did not comply with the criteria set out in art. 27(1). That article precluded only measures which might affect, to a non-negligible extent, the amount of tax due at the final consumption stage. Therefore, under art. 27(1) and (5), a derogating scheme for collecting VAT by means of tax stamps was compatible with the requirements laid down by the provisions of the directive and did not exceed what was necessary for the simplification of the procedure for charging the tax. The absence of an obligation to reimburse amounts paid for the purchase of excise stamps which corresponded to VAT was not incompatible with the sixth directive, where those stamps disappeared before being affixed to the tobacco products, if that disappearance was not attributable to force majeure or to an accident and if it was not established that the stamps had been destroyed or rendered permanently unusable.

European Court of Justice (Third Chamber). Judgment delivered 15 June 2006.