Report for the Hearing in Case C-69/92

I — Legislative background

A — Community legislation

1. The seventh recital in the preamble to 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 (OJ 1977 L 145, p. 1, ‘the Sixth Directive’) reads as follows:

‘whereas the determination of the place where taxable transactions are effected has been the subject of conflicts concerning jurisdiction as between Member States, in particular as regards supplies of goods for assembly and the supply of services; although the place where a supply of services is effected should in principle be defined as the place where the person supplying the services has his principal place of business, that place should be defined as being in the country of the person to whom the services are supplied, in particular in the case of certain services supplied between taxable persons where the cost of the services is included in the price of the goods.’

2. In pursuit of the objective indicated by this recital, Article 9(1) of the directive provides that:

‘the place where a service is supplied shall be deemed to be the place where the supplier has established his business... .’

3. Article 9(2) sets out a number of exceptions to that principle. With regard to advertising services, it provides as follows:

‘However:

...

e) the place where the following services are supplied when performed for customers established outside the Community or for taxable persons established in the Community but not in the same country as the supplier, shall be the place where the customer has established his business or has a fixed establishment to which the service is supplied or, in the absence of such a place, the place where he has his permanent address or usually resides: ...

advertising services.’

4. It is apparent from the documents before the Court that, in order to interpret the term ‘advertising services’ in the abovementioned provision, in 1980 the Commission distributed to the VAT Committee a working paper (No 21, ref. XV/35/80), which states as follows:

‘In the view of the Commission's departments, the provision clearly covers services connected with advertising, including the activities of publicity agents and advertising agencies. Such services are deemed to be

services which are intended, directly or indirectly, to prompt the persons at whom the advertising is directed to purchase objects or services. These include in particular:

advertising consultancy, preparation, planning and presentation;

the production of advertising aids;

the carrying out of advertising.

Besides actual business advertising, the provision also covers services which are not directly related to the advertising of goods and services but which, as business notices, may have an indirect advertising effect, e. g. banks' financial notices, the publication of firms' job vacancies or balance sheets, notification of a change in a professional person's business address.’

B — Luxembourg legislation and administrative practice

5. It is apparent from the documents before the Court that Article 9(2)(e) of the Sixth Directive was incorporated into Article 17(2)(e) of the Luxembourg Law concerning VAT, of 12 February 1979.

6. The Grand-Ducal Regulation of 7 March 1980 laying down the limits and conditions for the application of the reduced rate of VAT aims to define the different transactions taxable at the reduced rate. Article 4(e) of that regulation defines ‘advertising services’ as follows:

‘all advertising in general and of generally whatever nature and, in particular, advertising in newspapers, periodicals, books, brochures, concert programmes, theatre programmes or programmes for other events, by ordinary posters or illuminated signs, by the exhibition of films or slides, by television or radio broadcasting ’.

7. A letter of 6 December 1988 from the Luxembourg Government to the Commission in response to a request for information shows that the authorities of the Grand Duchy interpret the abovementioned article as meaning that the reduced rate applies in particular to advertising consultancy services, the preparation, planning and presentation of advertising operations, the production of advertising aids and carrying out the advertising operation, including birth, death and marriage announcements as well as official announcements and all other similar advertisements.

8. On the other hand, according to this administrative interpretation, Article 4(e) of the Grand-Ducal Regulation does not refer to: (a) the sale of articles in the context of an advertising campaign; the place of taxation of such a transaction is that prescribed by Article 8 of the Sixth Directive; (b) services supplied in the context of ‘public relations’ at events such as press conferences, seminars, cocktail parties, social functions and organized leisure activities, etc.; these services are taxable in the country where they are physically carried out; (c) the letting of sites for advertisements, since according to the Luxembourg authorities, this does not constitute an advertising service.

II — Pre-litigation procedure

9. The Commission took the view that the differentiation between advertising services made by the Grand-Ducal Regulation, as applied in practice by the Luxembourg authorities, was contrary to Article 9(2)(e) of the Sixth Directive and, by letter of 20 October 1989, gave formal notice to the Government of the Grand Duchy of Luxembourg to submit its observations pursuant to Article 169 of the EEC Treaty within two months of receipt of the said letter.

10. In its reply of 12 February 1990, the Luxembourg Government, while pointing out that the wording of the Luxembourg provision did not exclude a wide interpretation of the term ‘advertising services’, contended (a) that the restrictive interpretation adopted by the national authorities was compatible with Community law because it was based on the case-law of the Court of Justice (judgment in Case 139/84 Van Dijk's Boekhuis v Staatssecretaris van Financiën ECR 1405); (b) that this interpretation was corroborated by the report given to the VAT Committee by the Commission's departments; and (c) that the exclusion of the supply of goods was explained by the fact that the administrative interpretation rested upon the concept of ‘advertising services’. In this connection the Luxembourg Government added that a supply of goods by a taxable person in the context of an advertising campaign was governed by the provisions of the Sixth Directive relating to the place of taxation of supplies of goods (Articles 5(1) and 8 of the directive).

11. Since the Commission was unable to accept the arguments of the Government of the Grand Duchy of Luxembourg, it sent it, by letter of 6 September 1991, a reasoned opinion in which it repeated the position set out in the letter of formal notice and requested the Government to take the necessary measures to comply with the opinion within two months of the date of notification.

12. The reasoned opinion failed to elicit a response. The Commission therefore brought this action for failure to fulfil obligations.

III — Written procedure and form of order sought by the Commission

13. The Commission's application was received at the Court Registry on 6 March 1992.

14. The Grand Duchy of Luxembourg, on which the application was duly served, did not reply within the prescribed time limit. The Commission then applied to the Court for judgment in its favour.

15. The Commission submits that the Court should: declare that, by excluding a series of economic activities (in particular press conferences, seminars, cocktail parties, social functions and organized leisure activities, and the letting of sites for advertisements) from the concept of ‘advertising services’ under Article 9(2)(e) of the Sixth Directive, the Grand Duchy of Luxembourg has failed to fulfil its obligations under that directive and the EEC Treaty; order the Grand Duchy of Luxembourg to pay the costs.

16. 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 enquiry.

IV — Pleas in law and arguments of the Commission

17. The Commission submits that, as Article 9(2)(e) of the Sixth Directive is a rule of conflict, the term ‘advertising services’ which it contains must be interpreted uniformly in order to avoid instances of double taxation or non-taxation which could result from differing interpretations. It is therefore necessary to determine the criteria on the basis of which such uniform interpretation must be made.

18. The Commission states that neither the seventh recital in the preamble to nor Article 9(2)(e) of the Sixth Directive give any guidance for this purpose. Moreover, no indications can be inferred from the spirit of the Sixth Directive.

19. In a situation of that kind it is necessary to refer to common usage, as the Court's case-law shows (judgment in Van Dijk's Boekhuis, cited above, paragraphs 19 and 20). It appears that common usage makes no distinction between advertising services in the strict sense and promotional services. Advertising services represent all the services performed by an advertising agent on behalf of his client. All these activities have the common purpose of promoting the client's business.

20. That being so, the restrictive interpretation of ‘advertising services’ which emerges from Article 4(e) of the Grand-Ducal Regulation of 4 March 1980 and the administrative practice of Luxembourg relating thereto is liable to give rise to legal uncertainty or double taxation (or non-taxation, as the case may be). Those problems also arise from the disparity between the Luxembourg interpretation and that of other Member States.

21. The Commission also observes that the Luxembourg authorities are not justified in considering that the restrictive interpretation given by the Grand-Ducal Regulation of 7 March 1980 can be based on the opinion delivered by the Commission services to the VAT Committee. On the contrary, the opinion gives an extremely wide definition of ‘advertising service’ because it extends the term to include even announcements in newspapers which, although not made by an advertising agency, may have the effect of advertising. The Commission's report also referred, inter alia, to ‘the carrying out of advertising’, which necessarily includes supplying an advertising campaign which could comprise not only a supply of services in the strict sense of the term, but also the supply of certain goods, for example, samples handed out in the course of an advertising campaign, the organisation of a cocktail party, etc..

22. The Commission does not accept the argument of the authorities of the Grand Duchy to the effect that among the activities carried out by an advertising agent, supplies of goods (the place of taxation of which is governed by Article 8) should be distinguished from supplies of services (the place of taxation of which is governed by Article 9). According to the Commission, the Government of the Grand Duchy is confusing two totally different activities. In particular, where a supplier of advertising has to invoice a supply of goods in the context of an advertising campaign, he is the intermediary between the taxable person whose business it is to supply the goods and the person who receives them.

23. Articles 8 and 9 of the Sixth Directive mention numerous supplies which are also capable of forming part of advertising services (transport, supply of goods, etc.). However, this does not mean that it is the purpose of the directive to treat those supplies differently with regard to determining their place of taxation. On the other hand, if they are in the nature of advertising services, they come within the ambit of Article 9(2)(e); any other possibility would lead to arbitrary action by administrative authorities and disparities between Member States.

C. N. Kakouris

Judge-Rapporteur

1 Language of the case: French.