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Case:
CE, Ass., 3 février 1989, p. 44
Case Compagnie Alitalia
Date:
03 February 1989
Note:
Translated French Cases and Materials under the direction of Professor B. Markesinis and M. le Conseiller Dominique Hascher
Translated by:
Professor John Bell FBA
Copyright:
Professor B. S. Markesinis

Considering that the competent authority, faced with a request for the withdrawal of an illegal regulation is bound to accede to it, either if the regulation was illegal on the date at which it was made, or if the illegality results from legal or factual circumstances arising after that date; as, based the provisions of art. 3 of the Decree of 28 November 1983 concerning relations between the administration and its users, which is influenced by this principle, Alitalia requested on 2 August 1985 that the Prime Minister repeal art. 1 of the Decree no 67-604 of 27 July 1967, codified by art. 230 of Annex II of the General Taxation Code, and arts. 25 and 26 of the Decree no 79-1163 of 29 November 1979, codified in arts. 236 and 238 of Annex II of the General Taxation Code on the basis that, in the first place, their provisions were not compatible with the objectives set out in the Sixth Directive of the Council of the European Communities and, in the second place, were contrary to those objectives; as, since the Prime Minister had not responded to this request within the period of four months, it follows that there was an implied decision to reject it, which the Alitalia company has challenged as ultra vires within the limitation period;

Considering that it follows clearly from the provisions of art. 189 of the Treaty of 15 March 1957 that directives of the Council of the European Economic Communities bind member states “in relation to the result to be achieved”; as, if in order to attain this result, the national authorities are bound to adapt their legislation and regulations to the directives addressed to them remain alone competent to decide the form to be given to the implementation of these directives and to fix for themselves, under the control of national courts, the appropriate means to produce their effects in internal law, once the implementation period has passed, these authorities cannot lawfully leave in force regulatory provisions which would no longer be compatible with the objectives defined by the relevant directive, nor enact regulatory provision w which would be contrary to them;

Considering that if the provisions of art. 230 of Annex II of the General Taxation Code like those of arts. 236 and 238 of the same Annex were enacted on the basis of art. 273, para. 1, of the General Taxation Code resulting from the Law of 6 January 1966, the claim of the Alitalia Company is not intended to submit to the administrative judge an examination of the compatibility of a national law with the objectives contained in a directive, as the Prime Minister claims, but it is merely concerned that the judge should review the compatibility with those objectives of decisions taken by authorities having decree-making power, based on legislative authorisation to implement the directive into national law;

Considering that, on the one hand, art. 1 of the Sixth Directive adopted by the Council of the European Communities on 17 May 1977 concerning the harmonisation of legislation in the member states relating to turnover taxes, fixed as an objective for Member States to take legislative, regulatory and administrative measures before 1 January 1978 to adapt their system of VAT to the provisions contained in this Directive; as the Ninth Directive of 26 June 1978 delayed that deadline until 1 January 1979;

Considering that, finally, art 17 para. 6 of the same Directive provides that “After the elapse of a period of four years at the latest from the date of entry into force of this present Directive, the Council deciding unanimously on a proposal from the Commission, will determine the expenditure which does not give rise to a right to a deduction of VAT. In any case, expenditure on luxuries, amusement and representation shall be excluded from the right to deduction. Until the entry into force of the rules just mentioned, member states may retain all the exclusions provided by their national legislation at the moment of entry into force of the present Directive”; as it results clearly from these provisions that, on the one hand, they cover the exclusion from the right to deduction of certain categories of goods services and businesses and not the rules applicable to the definition of the general conditions relating to the right of deduction and, on the other hand, that they fix as an objective for national authorities, after the date for entry into force of the Directive, not to extend the scope of exclusions from the right to deduct VAT provided for by the national laws applicable at that date;

On the legality of art. 1 of the decree no 67-6-4 o f27 July 1967 codified in art 230 para.1 of Annex II of the General Taxation Code

Considering that art. 271 para. I of the General Taxation Code resulting from the provisions of the Law of 6 January 1966 provides that “VAT which has been levied on elements of the taxable price is deductible from the VAT applicable to this operation”; as art. 273 of the same Code resulting from the provisions of the same Law provides that:

“1. Decrees made in the Conseil d'Etat shall determine the conditions for the application of art. 271…

2. Such decrees can provide for exclusions or restrictions and define the specific rules either for certain goods or services or for certain categories of undertaking”;

as art. 230 para.1 of Annex II of the General Code of Taxation, resulting from art. 1 of the decree of 27 July 1967 enacted on the basis of these provisions provided that “VAT having been levied on goods and services which the subjects of this tax acquire or which they deliver to themselves is only deductible if these goods and services are necessary to and are allocated exclusively to its exploitation”; as the cited provisions of art. 17 para. II of the Sixth Directive provides, as has been said above, for the deduction by the taxpayer of the tax levied on the goods and services used by him “to the extent” to which they are “taxed for the requirements of the operation”; as it follows that the first condiction for deduction provided for in art. 230 para. I of the cited Annex II concerned with the extent to which the goods and services concerned are necessary for the use of the goods and services in question are not incompatible with the objective set out in the Sixth Directive and and have not become illegal at the date set for its implementation; as, by contrast, the second condition imposed by art. 230 para. I of Annex II concerning the exclusive allocation of the use of the goods and services which can give rise to deduction is not compatible with the objective defined by the Sixth Directive insofar as it excludes all right to deduction from goods and services which are only partially allocated to the business even though these goods and services are used for the needs of the operations subject to taxation; as, to this extent, the provisions of art. 230 para. I of Annex II have become illegal and the applicant company is justified in claiming that they be repealed;

On the legality of art. 25 of Decree no 79-1163 of 29 December 1979 codified in art. 236 of Annex II of the General Code of Taxation

Considering that, on the basis of the cited provisions of art. 273 of the General Taxation Code resulting from the Law of 6 January 1966, the Government enacted a decree on 29 December 1979 amending Annex Ii of the General Taxation Code in relation to the right to deduct VAT; as art. 25 of this decree, codified in art. 236 of Annex II of the General Taxation Code excludes the right to deduct certain goods and services “such as housing or lodging, expenses for receptions, meals, entertainment and other expenses having a direct or indirect link with travel or residence”; though it reproduces the provisions which previously were found in arts 7 and 11 of the Decree of 27 July 1967, which related to the managers and personnel of the business, it extends these exclusions from the right to deduct VAT to all “goods and services used by third parties” to the business; as, to this extent, the said article breaches the objective of not extending existing exclusions, set out in art. 17 para. 6 of the Sixth Directive and is illegal;

On the legality of art. 26 of Decree no 79-1163 of 29 December 1979 codified in art. 238 of Annex II of the General Code of Taxation

Considering that the provisions of art. 238 of Annex II of the General Taxation Code, resulting from art. 26 of the Decree of 29 December 1979 which exclude the right to deduct VAT from goods transferred or services rendered “without remuneration or for a remuneration very much below the normal price” are not limited to bringing together and restating in different words the provisions previously set out in art. 10 of the Decree of 27 July 1967, but have alligned the conditions for deducting VAT on services to the more extensive provisions previously set out in relation to certain goods, objects or foodstuffs, but eliminating the requirement that these are gifts, i.e. of incompatibility with the interests of the business which was previously the precondition the exclusion from the right to deduction of services; as this the scope of the exclusions from the right to deduct VAT has been extended in relationt o services by this provision, contrary tot he objective of not extending existing exclusions, set out in art. 17 para. 6 of the Sixth Directive; as the challenged provision is thus illegal;

Considering that it follows from what has gone before that the Prime Minister illegally refused within the limits set out above to accede to the request of the Alitalia Company to repeal art 1 of the Decree of 27 July 1967 and arts. 25 and 26 of the Decree of 29 December 1979…