Report for the Hearing delivered in Case C-185/89

I — Community law applicable

Article 15 of the Sixth Council Directive (77/388/EEC) of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes — Common system of value-added tax: uniform basis of assessment (Official Journal 1977, L 145, p. 1) provides:

‘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 such exemptions and of preventing any evasion, avoidance or abuse: (1) the supply of goods dispatched or transported to a destination outside the territory of the country as defined in Article 3 by or on behalf of the vendor; (2) the supply of goods dispatched or transported to a destination outside the territory of the country as defined in Article 3 by or on behalf of a purchaser not established within the territory of the country, with the exception of goods transported by the purchaser himself for the equipping, fuelling and provisioning of pleasure boats and private aircraft or any other means of transport for private use; (3) ... (4) the supply of goods for the fuelling and provisioning of vessels : (a) used for navigation on the high seas and carrying passengers for reward or used for the purpose of commercial, industrial or fishing activities; (b) used for rescue or assistance at sea, or for inshore fishing, with the exception, for the latter, of ships' provisions; (c) of war, as defined in subheading 89.01 A of the Common Customs Tariff, leaving the country and bound for foreign ports or anchorages. The Member States may, however, restrict the scope of this exemption until the implementation of Community tax rules in this field; ...’

In addition Article 16(2) of the same directive provides that:

‘Subject to the consultation provided for in Article 29, Member States may opt to exempt imports for and supplies of goods to a taxable person intending to export them as they are or after processing, as well as supplies of services linked with his export business, up to a maximum equal to the value of his exports during the preceding 12 months.’

Article 29 of the directive provides for the setting up of an Advisory Committee on value-added tax consisting of representatives of the Member States and of the Commission.

II — Facts and procedure

1. In November 1983 Velker International Oil Company Ltd NV, Rotterdam, a company incorporated under Antilles law (hereinafter referred to as ‘Velker’), sold to Forsythe International BV, The Hague, (hereinafter referred to as ‘Forsythe’) two consignments of bunker oil which it had previously acquired from Handelmaatschappij Verhoeven BV, Rotterdam, (hereinafter referred to as ‘Verhoeven’). Verhoeven had itself bought the first consignment of oil from Olie Verwerking Amsterdam BV (hereinafter referred to as ‘OVA’). The two consignments were supplied to Forsythe directly, the first by OVA on 5 November 1983 and the second by Verhoeven on 11 November 1983. Forsythe stored the consignments of oil in tanks rented from a storage firm and they were then loaded on to seagoing vessels engaged in economic activities other than inshore fishing; the first consignment was loaded on 6, 7 and 8 November 1983 and the second on 17 and 18 November 1983.

2. Such transactions, known as ABC transactions, are governed by Article 3(3) of the Wet op de Omzetbelasting, the Netherlands Law on Turnover Tax. Pursuant to that provision, where there is a chain of several persons undertaking to supply the same goods and in reality physical delivery takes place directly from the first person in the chain to the last, each person in the chain is deemed to have supplied the goods and thus to have effected a taxable transaction.

3. In this case each of the parties to the transactions applied a zero VAT rate, in reliance on the combined provisions of Article 9(2)(b) of the Netherlands Law on Turnover Tax and the first subparagraph of Heading 4(a) of Table II annexed to that law, which allow the supply of goods for the fuelling and provisioning of seagoing vessels engaged in economic activities other than inshore fishing to be zero-rated.

4. However, the Netherlands tax authorities considered that tax exemption was not justified in this case and issued an additional VAT assessment notice on Velker for 1983.

5. Velker brought proceedings before the Gerechtshof (Court of Appeal), The Hague, which, in a judgment of 19 November 1986, annulled the assessment notice, taking the view that the oil supplied by Velker was for the fuelling and provisioning of seagoing vessels within the meaning of the provisions cited above. The Staatssecretaris van Financiën (Netherlands State Secretary for Finance) appealed to the Hoge Raad der Nederlanden (Supreme Court of the Netherlands). He maintained that only the supply of goods coinciding with the fuelling and provisioning of vessels and followed by the exportation of those goods could be considered to be a supply of goods for the fuelling and provisioning of vessels.

6. In its judgment of 24 May 1989, the Hoge Raad explained that the relevant provisions of the Law on Turnover Tax in the version applicable resulted from a Law of 28 December 1978 adopted to implement the Sixth Council Directive. It pointed out that it was not the intention of the Netherlands legislature to implement the final paragraph of Article 15(4) of the Sixth Directive and consequently the term ‘for ... fuelling and provisioning’ which appears in the national legislation must be understood in the same way as the term which appears in the Community directive.

7. Hence, by judgment of 24 May 1989, the Hoge Raad der Nederlanden decided to suspend proceedings and refer the following questions to the Court for a preliminary ruling: The judgment of the Hoge Raad der Nederlanden was registered at the Court on 29 May 1989.

‘(1) Must Article 15(4) of the Sixth Directive be construed as meaning that only supplies which coincide with fuelling and provisioning can be regarded as supplies of goods for the fuelling and provisioning of the vessels defined in that provision?

2) If that provision of the Sixth Directive does not have a meaning which is as restrictive as that defined in Question 1, must the following also be regarded as supplies within the meaning of that provision : only the supply of goods to an undertaking which will later use them for fuelling and provisioning vessels, or also goods supplied in a previous transaction, that is to say, to an undertaking which does not itself use the goods for fuelling and provisioning vessels but supplies them to another undertaking which does use them for that purpose?’

8. In accordance with Article 20 of the Protocol on the Statute of the Court of Justice of the European Communities, written observations were submitted by the Federal Republic of Germany, represented by Ernst Röder, Regierungsdirektor at the Federal Ministry of Economic Affairs, by the Government of the Kingdom of the Netherlands, represented by B. R. Bot, Secretary-General of the Ministry of Foreign Affairs, by the Government of the Portuguese Republic, represented by L. Fernandes, Director of the European Communities Directorate-General, and A. Correia, Assistant Director-General of the VAT Administration Department, by the Government of the United Kingdom represented by J. A. Gensmantel, Treasury Solicitor, and by the Commission of the European Communities, represented by J. F. Buhl, Legal Adviser, and B. J. Drijber, a member of the Commission's Legal Department, acting as Agents.

9. Upon hearing the Report of the Judge-Rapporteur and the views of the Advocate General the Court decided to open the oral procedure without any preparatory inquiry.

10. By decision of 17 January 1990 the Court assigned the case to the Fifth Chamber.

III — Summary of the written observations submitted to the Court

1. The Government of the Federal Republic of Germany states that the exemption provided for in Article 15(4) of the Sixth Directive does not apply solely to supplies made directly to maritime shipping companies. It also applies to supplies made at previous stages in the commercial chain if the condition laid down for the said exemption, namely that the supply is for the fuelling and provisioning of vessels, is clearly satisfied at the time of the supply. That interpretation is said to be supported by the wording of the material provisions in some language versions. Furthermore those provisions would have been drawn up differently if the exemption were intended only to apply to a limited range of purchasers. According to the German Government, the exemption of transactions preceding the supply to maritime shipping companies is not subject to consultation with the Advisory Committee on Value-Added Tax set up by Article 29 of the Sixth Directive. Pursuant to Article 16(2) of the directive such prior consultation is necessary only where States wish to exempt supplies preceding an export transaction. Article 15(4) does not relate to exports but to ‘like transactions’ and Article 16(2) does not therefore apply. The Government of the Federal Republic of Germany adds that it must also be inferred from the sense and purpose of Article 15(4) that transactions preceding supply to maritime shipping companies must be exempted. Article 15(4), like Article 15(5) and (8), is intended to simplify administration, not to confer a substantive tax benefit, since if there were no exemption maritime shipping companies could obtain reimbursement of the tax they had paid. That same objective of simplification is said to warrant exemption being extended to transactions taking place at previous stages in the commercial chain, since the undertakings carrying out such transactions are in any event entitled to deduct tax paid at previous stages. Thus the exemption applied at previous stages pursuant to Article 15(4) would bring with it as few real benefits as exemption applied at the final stage in the commercial chain. The Government of the Federal Republic of Germany emphasizes that the material provisions of the Sixth Directive have been transposed into German law in accordance with the above interpretation. Finally it concludes that if the answer to the first question is in accordance with the foregoing, there is no need to reply to the second question.

2. The Netherlands Government points out that pursuant to Article 17(3)(b) of the Sixth Directive the exemption provided for in Article 15 is accompanied by retention of the right to a deduction or refund of the turnover tax invoiced at preceding stages by other undertakings. Article 15(1) concerns export transactions, that is to say, the supply of goods by a trader who undertakes their export himself. Article 15(2) and (4) relate to transactions treated as exports constituted by the supply of goods exported by the purchaser or on his behalf. In the case of exports under Article 15(1), and in like transactions under Article 15(2), the exemption applies exclusively to supplies which directly precede the actual export of the goods; according to the Netherlands Government it is necessary that when they are supplied the goods are actually ‘to be exported’. That interpretation is said to follow from the actual wording of the two paragraphs and to be confirmed by Article 16(2) which allows Member Sutes to exempt supplies of goods to a taxable person intending to export them. According to the Netherlands Government, the provisions of Article 15(4) must be interpreted in the same way. Exemption may thus only be granted for supplies which coincide with the fuelling and provisioning of vessels. The exemption does not apply either where the goods are supplied to a taxable person who does not use them himself for fuelling and provisioning or when they are used for fuelling and provisioning only at some date after their delivery. That conclusion is, moreover, in accordance with the general principle whereby turnover tax must be levied on any taxable transaction effected by a taxable person and exemptions are to be construed strictly. The Netherlands Government therefore considers that the first question referred to the Court calls for an answer in the affirmative, thus dispensing with the need to answer the second question.

3. The Portuguese Government begins by pointing out that, in contrast to simple exemption, where the State loses only the benefit of tax at subsequent stages, complete exemption or zero-rating allows the deduction of all tax paid at preceding stages, thus ‘purging’ the goods of any tax. As is confirmed by the first paragraph of Article 15 of the Sixth Directive, that is the reason why Member States must set up rigorous and well-defined sytems to prevent fraud and diversion. Article 15(4) should thus be interpreted in the light of those principles and, equally, account should be taken of the objective pursued by the Community legislature. According to the Portuguese Government, the term ‘the supply of goods for the fuelling and provisioning of vessels’, is capable of bearing several meanings in a literal sense because it could refer to supplies coinciding with fuelling and provisioning, to supplies made with a view to the later fuelling and provisioning of vessels, or to supplies taking place at a previous marketing stage relating to goods capable of subsequently being used for fuelling or provisioning. In order to decide what the term really means, recourse must be had to a teleologica! construction and the structure of the system must be considered. By treating the fuelling and provisioning of vessels as exports, the legislature intended to benefit merchant navy and fishing activities while at the same time attempting to obviate any evasion, avoidance or abuse. That treatment, which allows for exemption from VAT, is thought to be warranted because fuel, for instance, must be used by the sea-bound vessel. If the fuel is put into storage previously, exemption cannot operate unless all of it is for fuelling and provisioning to the exclusion of any other end, for example sale or transfer to other undertakings. Therefore only the supply of goods for the fuelling and provisioning of vessels coinciding with that operation may be exempted. The same conclusion must be drawn from an examination of the structure of the system. Since the extension of the application of zero-rating to marketing stages preceding export transactions is made subject to the procedure laid down in Article 16(2) of the Sixth Directive, a fortiori the same holds true for its extension to marketing stages preceding ‘like transactions’. The Netherlands Government has not, however, availed itself of the possibility provided by that procedure. The Portuguese Government therefore considers that the reply to the national court should be that the provisions of the Sixth Directive at issue must be interpreted ‘as meaning that only supplies that coincide with fuelling and provisioning can be regarded as supplies of goods for the fuelling and provisioning of the vessels described in those provisions, to the exclusion of supplies of goods for storage and, a fortiori, sales of the same goods to undertakings other than the undertaking using them’.

4. The United Kingdom Government points out that the object of Article 15(4) is to relieve from VAT the export of goods supplied to ships as provisions or fuel. That object is achieved with the minimum of physical control if the final delivery in the supply chain (that is to say, the supply to the departing ship) is relieved of VAT, and all earlier supplies are taxed as domestic supplies. The normal VAT input tax mechanism allows each intermediate supply to be relieved of VAT. That approach requires no retrospective adjusting action to be taken where the final export intention is frustrated or intermediate diversions occur. Thus, in the view of the United Kingdom, only the final supply in the course of actual shipment of goods as provisions or fuel is entitled to relief from VAT. Member States are not required to allow relief in respect of transactions where the supplier or recipient of goods asserts an intention that those goods will at some point in the future be shipped as provisions or fuel either by the recipient or a third party. Such an interpretation is said to accord with the opening words of Article 15 of the Sixth Directive, which require Member States to ‘exempt the following under conditions which they shall lay down for the purpose of ensuring the correct and straightforward application of such exemptions and of preventing any evasion, avoidance or abuse’. Therefore supplies are only relieved of tax where it is certain that the conditions of relief are met at the time of supply. In the case of goods for the fuelling or provisioning of vessels, relief must be limited to the final supply of those goods to vessels and cannot be allowed in respect of earlier supplies of the goods, even where there is a stated intention that the goods are for eventual supply to the vessels. The United Kingdom Government adds that if a different interpretation of Article 15(4) were adopted by the Court, the last sentence of Article 15(4) should be borne in mind, inasmuch as it allows States to restrict the scope of that exemption until the implementation of Community tax rules in that field, and such rules have not yet come about. Furthermore, if the supply of goods prior to final supply for export were relieved of VAT, a system of physical checks and controls on the goods would have to be set up to ensure that they were not diverted to the domestic market without having borne VAT. Such a system would hinder the free movement of goods in domestic markets. Conversely, the restriction of relief to the final supply only of goods as provisions and fuel, as implemented by the United Kingdom legislation, makes control and checking procedures easier and reduces the risk of goods being diverted to the domestic market. Finally the United Kingdom Government emphasizes that a negative reply to the first question would have serious implications for other headings of Article 15 of the Sixth Directive, and for goods other than fuel. Tax-free diversion to domestic use could have a severe effect on, and lead to complaints by, legitimate traders. In addition, the ability to buy tax-free could create trade distortions and affect the cash-flow of both buyer and seller. According to the United Kingdom Government, the first question should therefore be answered in the affirmative, thus dispensing with the need to reply to the second question.

5. The Commission of the European Communities considers that the interpretation of Article 15 of the Sixth Directive is closely bound up with interpretation of the term ‘supply of goods’ which appears in Article 5(1). Supply is there defined as ‘the transfer of the right to dispose of tangible property as owner’. That Community definition should be given a broad interpretation. In this case the particular circumstances in which the transactions between Verhoeven, Velker and Forsythe took place should not mean that the sale by Velker to Forsythe of consignments of fuel was not subject to VAT, since Velker had the legal right to dispose of the fuel which had been transferred to it by Verhoeven as owner and it could have disposed of the fuel by reselling it to a final consumer who could not take advantage of the exemption provided for in Article 15(4) of the Sixth Directive. Moreover the fact that a taxable person is entitled to dispose of goods as owner is not necessarily linked to physical possession of the goods as is confirmed by the Court's judgment of 8 March 1988 in Case 165/86 Leesportefeuille ‘Intiem’ [1988] ECR 1471. The Commission then addresses the concept of VAT exemption for export transactions. In its view, the common system of VAT is based on the principle of taxing each stage in the economic cycle of a transaction and includes the right to deduct tax paid on inputs. If it were necessary to make a distinction according to whether supplies had been effected by a subsidiary of company A to company B and then from the latter to the final consumer, or directly from company A to company C, that would create such administrative complications that it suggests that the VAT system should not be derogated from solely because the latter situation has arisen. The Commission points out that the last paragraph of Article 15(4) of the Sixth Directive allows Member States to limit the scope of the exemption in respect of supplies of goods for the fuelling and provisioning of vessels. A broad interpretation of that exemption would thus run counter to the wording of those provisions. The Court has, on several occasions, refused to allow chain exemptions in favour of taxable persons other than the person effecting the final supply giving rise to exemption (judgments of 11 July 1985 in Case 197/84 Commission v Germany [1985] ECR 2655 and of 15 June 1989 in Case 348/87 Sticking Uitvoering Financiële Acties [1989] ECR 1737). The same interpretation of the provisions of the VAT system governing entitlement to exemption with reimbursement of tax paid at a preceding stage is also in accordance with the principles set out by the Court in its judgments of 21 June 1988 in Case 415/85 Commission v Ireland [1988] ECR 3097 and Case 416/85 Commission v United Kingdom [1988] ECR 3127. If the same principles are applied to a situation where a VAT exemption comes into operation in respect of a transaction constituting an export which, as such, is subject to the provisions of Article 15 of the Sixth Directive, this necessarily results in only the final transaction leading to the export of those goods fulfilling the conditions required for application of the exemption with reimbursement of taxes paid at a preceding stage. Finally, the Commission suggests that the reply to the first question should be that ‘the provisions of the first paragraph of Article 15 and Article 15(4) of the Sixth Directive must be interpreted as meaning that only the final supply giving rise to fuelling and provisioning may be regarded as a supply of goods for the fuelling and provisioning of vessels’. In view of that reply, there is no need to reply to the second question.

F. Grévisse

Judge-Rapporteur

1 Language of the case: Dutch.