Becker v Finanzamt Münster-Innenstadt (Case 8/81)

• Jurisdiction: European Union
• Date: 19 January 1982
• Court: European Court of Justice

Becker

and

Finanzamt Münster-Innenstadt

(Mertens de Wilmars, President; Bosco, Touffait, Due, Pescatore, Lord Mackenzie Stuart, O'Keeffe, Koopmans, Everling, Chloros and Grévisse, Judges; Sir Gordon Slynn, Advocate-General)

Court of Justice of the European Communities.

Treaties — Effect in municipal law — EEC Treaty, 1957 — Legislation enacted by EEC institutions — Status under municipal law — Directives — Direct effect — Conditions — Failure of Member State to implement provisions of directive by specified time — Whether directive may be relied upon by individuals before municipal courts

International organizations — EEC — Powers — Legislation — Directives enacted by Council — Direct effect — Directive conferring margin of discretion on Member States — Individual provisions imposing precise obligation and capable of having direct effect — Whether severable from other provisions of directive

Relationship of international law and municipal law — Treaties — Effect in municipal law — EEC Treaty, 1957 — Article 189 — Directives — Whether capable of conferring rights on individuals

Economics, trade and finance — Taxation — Value added tax (‘VAT’) — Harmonization — Sixth EEC Council Directive 77/388 — Exemptions conferred by directive — Implementation in Member States — Failure of Member State to comply with obligations — Whether individuals may invoke exemptions under directive in case of non-implementation — The law of the European Economic Community

Summary: The facts:—The plaintiff in the main action, Mrs Becker, carried on the business of a self-employed credit negotiator. As such she was liable in 1979, under the German legislation then in force, to pay value added tax (‘VAT’) on her income from credit transactions. Nevertheless she claimed exemption on the basis of Article 13 B (d) (1) of the Sixth EEC Council Directive 77/388 on the Harmonization of National VAT Legislation (‘Sixth VAT directive’). The German implementation measures for the directive came into force on 1 January 1980, but Mrs Becker argued that Article 13 B (d) (1) imposed upon the Member States an obligation to exempt credit negotiation transactions from VAT which had become directly effective in German law on 1 January 1979, the final date laid down for its implementation by the Member States.

The local tax office (Finanzamt) rejected her claim for exemption and she then instituted proceedings before the Fiscal Court (Finanzgericht) of Münster, which stayed the proceedings and made a reference to the Court of Justice of the European Communities for a preliminary ruling under Article 177 of the EEC Treaty. The Court of Justice was asked to rule on whether or not Article 13 B (d) (1) of the directive was directly applicable in the Federal Republic from 1 January 1979.

Opinion of the Advocate-General:—The Advocate-General argued that, according to the Court's settled case law, if a directive was addressed to a Member State, that State was under a duty to give effect to it even though the choice and methods by which the purpose of the directive was to be achieved was left to the Member States. If a Member State failed to implement the directive an individual could rely on its terms, provided these were unconditional and sufficiently precise, as against the Member State concerned. The latter could not take advantage of its own failure to act in due time by contending that the directive was not yet in force.

Having examined Article 13 B (d) (1) of the directive in question, the Advocate-General submitted that the Federal Republic of Germany was obliged to have implemented it by 1 January 1979 and its terms were unconditional and sufficiently precise so as to enable individuals to rely on them against the German tax authorities. The Advocate-General thereby agreed with the Commission in rejecting contrary submissions put forward by the French and German Governments, to the effect that the margin of discretion conferred by Article 13 was too broad to enable direct effect to be given to its provisions.

Held:—The provision in question of Directive 77/388 could be relied upon as from 1 January 1979 by a credit negotiator, in the absence of implementation, and the State could not claim, as against him, that it had failed to implement the directive.

(1) It would be incompatible with the binding effect which Article 189 of the EEC Treaty ascribed to directives to exclude in principle the possibility of the obligations imposed by them being relied upon by the persons concerned. Particularly in cases where the Community authorities had, by means of a directive, placed Member States under a duty to adopt a certain course of action, the effectiveness of such a measure would be diminished if persons were prevented from relying upon it in proceedings before a court, and national courts were prevented from taking it into consideration as an element of Community law (pp. 137–8).

(2) Consequently a Member State which had not adopted the implementing measures required by the directive within the prescribed period could not plead, as against individuals, its own failure to perform the obligations which the directive entailed. Thus, wherever the provisions of a directive appeared, as far as their subject-matter was concerned, to be unconditional and sufficiently precise, those provisions could, in the absence of implementing measures adopted within the prescribed period, be relied upon as against any national provision which was incompatible with the directive or in so far as the provisions defined rights which individuals were able to assert against the State (p. 138).

(3) Whilst the Sixth Directive undoubtedly conferred upon the Member States varying degrees of discretion as regards implementing certain of its provisions, individuals could not without reason be denied the right to rely on any provisions which owing to their particular subject-matter were capable of being severed from the general body of provisions and applied separately. This minimum guarantee for provisions adversely affected by the failure to implement the directive was a consequence of the binding nature of the obligation imposed on the Member States by the third paragraph of Article 189 of the Treaty. That obligation would be rendered totally ineffectual if the Member States were permitted to annul, as the result of their inactivity, even those effects which certain provisions of a directive were capable of producing by virtue of their subject-matter. Consequently the general nature of the directive in question, or the discretion which it left in other areas to the Member States, could not be relied upon in order to deny any effect to those provisions which, in view of their subject-matter, could be relied upon to good purpose before a court even though the directive as a whole had not been implemented (p. 139).

The text of the judgment of the Court of Justice of the European Communities commences at p. 123. The text of the opinion of Advocate-General Sir Gordon Slynn delivered on 18 November 1981 commences on the following page.

This case comes before the Court by way of a reference for a preliminary ruling made by the Finanzgericht in Münster in the Federal Republic of Germany on 27 November 1980. The order was made in an action brought by a Mrs Ursula Becker, a self-employed credit negotiator, against the Finanzamt Münster-Innenstadt (‘the Finanzamt’). In that action she claims to be exempted from VAT for the period March to June 1979 by virtue of Article 13 B (d) 1 of Council Directive 77/388 of 17 May 1977 (Official Journal L 145/1 of 13 June 1977).

Article 1 of the directive provides that the Member States ‘shall modify their present value-added tax systems in accordance with the following articles’ and ‘shall adopt the necessary laws, regulations and administrative provisions so that the systems as modified enter into force at the earliest opportunity and by 1 January 1978 at the latest.’ A transitional period, fixed to last ‘initially’ for five years from 1 January 1978 was instituted by Article 28 (4) in order to allow time for national laws to be gradually adapted in the areas specified in Article 28 (3), but none of these appears to be relevant to this case.

Article 13 B of Directive 77/388 provides, so far as is relevant: ‘Without prejudice to other Community provisions, Member States shall exempt the following under conditions which they shall lay down for the purpose of ensuring the correct and straightforward application of the exemptions and of preventing any possible evasion, avoidance or abuse: … (d) the following transactions: 1 the granting and the negotiation of credit and the management of credit by the person granting it …’.

The Federal Republic of Germany was one of several Member States which found itself unable to implement the directive within the period fixed for doing so. In consequence, the Council adopted Directive 78/583 of 26 June 1978 (Official Journal L 194/16 of 19 July 1978) which extended the deadline for the implementation of Directive 77/388 to 1 January 1979. Despite this extension, Germany was still unable to comply with the directive in time and, on 13 August 1979, the Commission began an action before the Court (Case 132/79) under Article 169 of the EEC Treaty. Two months later, on 26 November 1979, a law was finally passed implementing the directive with effect from 1 January 1980 and the Commission discontinued its action.

The present case is thus concerned with the period during which, contrary to the provisions of Article 1 of Directive 77/388, the Federal Republic of Germany had not implemented the directive.

It appears that, in her preliminary tax returns for the period March to June 1979 (after the extended deadline for implementing the directive had expired and before the German Government had acted), Mrs Becker entered the ‘credit negotiation transactions’ she had completed in those months as being exempt from VAT. In...