Commission of the European Communities v Kingdom of Spain.

• Jurisdiction: European Union
• Celex Number: 62003CJ0204
• ECLI: ECLI:EU:C:2005:588
• Date: 06 October 2005
• Docket Number: C-204/03
• Court: Court of Justice (European Union)
• Procedure Type: Recurso por incumplimiento – fundado

Case C-204/03

Commission of the European Communities

v

Kingdom of Spain

(Failure of a Member State to fulfil obligations –– Articles 17 and 19 of the Sixth VAT Directive –– Subsidies –– Limitation of the right to deduct)

Opinion of Advocate General Poiares Maduro delivered on 10 March 2005

Judgment of the Court (Third Chamber), 6 October 2005

Summary of the Judgment

Tax provisions – Harmonisation of laws – Turnover taxes – Common system of value added tax – Deduction of input tax – Limitations on the right to deduct – Subsidies – National legislation providing for a deductible proportion of tax for taxable persons who carry out only taxable transactions, and limiting the right to deduct tax on the purchase of goods and services which are subsidised – Not permissible

(Council Directive 77/388, Arts 17(2) and (5), and 19)

A Member State which, in the context of subsidised activities, provides for a deductible proportion of value added tax for taxable persons who carry out only taxable transactions, and which lays down a special rule which limits the right to deduct value added tax on the purchase of goods and services which are subsidised, fails to fulfil its obligations under Community law, and, in particular, Articles 17(2) and (5) and 19 of Sixth Directive 77/388 on the harmonisation of the laws of the Member States relating to turnover taxes.

(see para. 31, operative part)

JUDGMENT OF THE COURT (Third Chamber)

6 October 2005 (*)

(Failure of a Member State to fulfil its obligations – Articles 17 and 19 of the Sixth VAT Directive – Subsidies – Limitation of the right to deduct)

In Case C-204/03,

ACTION under Article 226 EC for failure to fulfil obligations, brought on 14 May 2003,

Commission of the European Communities, represented by E. Traversa and L. Lozano Palacios, acting as Agents, with an address for service in Luxembourg,

applicant,

v

Kingdom of Spain, represented by N. Díaz Abad, acting as Agent, with an address for service in Luxembourg,

defendant,

THE COURT (Third Chamber),

composed of A. Rosas, President of the Chamber, J.-P. Puissochet, S. von Bahr (Rapporteur), J. Malenovský and U. Lõhmus, Judges,

Advocate General: M. Poiares Maduro,

Registrar: R. Grass,

having regard to the written procedure,

after hearing the Opinion of the Advocate General at the sitting on 10 March 2005,

gives the following

Judgment

1 By its application, the Commission of the European Communities seeks a declaration from the Court that, by providing for a deductible proportion of value added tax (‘VAT’) for taxable persons who carry out only taxable transactions, and by laying down a special rule which limits the right to deduct VAT on the purchase of goods and services which are subsidised, the Kingdom of Spain has failed to fulfil its obligations under Community law, and, in particular, Articles 17(2) and (5) and 19 of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment (OJ 1977 L 145, p. 1), as amended by Council Directive 95/7/EC of 10 April 1995 (OJ 1995 L 102, p. 18; ‘the Sixth Directive’).

Legal framework

Community legislation

2 Article 11A(1)(a) of the Sixth Directive provides that the taxable amount shall be:

‘in respect of supplies of goods and services … everything which constitutes the consideration which has been or is to be obtained by the supplier from the purchaser, the customer or a third party for such supplies including subsidies directly linked to the price of such supplies’.

3 Article 17(2)(a) of the directive, in the version resulting from Article 28f thereof, provides that, ‘[i]n so far as the goods and services are used for the purposes of his taxable transactions, the taxable person shall be entitled to deduct from the tax which he is liable to pay … value added tax due or paid within the territory of the country in respect of goods or services supplied or to be supplied to him by another taxable person’.

4 Article 17(5) provides that:

‘As regards goods and services to be used by a taxable person both for transactions covered by paragraphs 2 and 3, in respect of which value added tax is deductible, and for transactions in respect of which value added tax is not deductible, only such proportion of the value added tax shall be deductible as is attributable to the former transactions.

This proportion shall be determined, in accordance with...