The action
22 As a preliminary point, it must be observed that it is common ground that, under United Kingdom law, traders established outside the European Union are not entitled to recover input tax in that Member State in respect of goods or services used for the purposes of transactions falling within the categories mentioned in Article 169(c) of the VAT Directive, namely certain insurance and financial transactions.
23 Therefore, this action concerns solely the question whether Articles 169 to 171 of the VAT Directive and Article 2(1) of the Thirteenth Directive confer such a right on traders established outside the European Union.
24 According to Article 2(1) of the Thirteenth Directive, each Member State is to refund to any taxable person not established in the territory of the European Union any VAT charged in respect of services rendered or moveable property supplied to him in the territory of the country by other taxable persons or charged in respect of the importation of goods into the country, in so far as such goods and services are used for the purposes of the transactions referred to in Article 17(3)(a) and (b) of the Sixth Directive.
25 As far as concerns the reference to Article 17(3)(a) and (b) of the Sixth Directive in Article 2(1) of the Thirteenth Directive, it must be observed, first, that the wording of the Thirteenth Directive was not altered after the entry into force of the VAT Directive, Article 169(a) and (b) of which replaced Article 17(3)(a) and (b) of the Sixth Directive. Article 2(1) of the Thirteenth Directive must, therefore, be understood as referring to Article 169(a) and (b) of the VAT Directive.
26 Second, it must be observed that the insurance and banking transactions at issue in the present case are referred to in Article 169(c) of the VAT Directive.
27 The United Kingdom, relying on the wording of Article 2(1) of the Thirteenth Directive, which expressly mentions only the transactions referred to in Article 169(a) and (b), contends that there is no entitlement to a refund of VAT with respect to the transactions referred to in Article 169(c) thereof.
28 On the other hand, the Commission, while accepting that Article 2(1) of the Thirteenth Directive does not refer to the transactions covered by Article 169(c) of the VAT Directive, submits, relying on arguments derived from the drafting history, the general scheme and the purpose of the relevant provisions, that Article 2(1) of the Thirteenth Directive, read in conjunction with Article 169 to 171 of the VAT Directive, must be understood as also conferring a right to a refund of VAT with respect to the transactions referred to in Article 169(c) of the VAT Directive.
29 Therefore, it must be determined whether the arguments put forward by the Commission in support of its interpretation of Article 2(1) of the Thirteenth Directive and Articles 169 to 171 of the VAT Directive are capable of justifying an interpretation to the effect that those articles confer a right to a refund of VAT for the transactions covered by Article 169(c) of the VAT Directive even though the wording of Article 2(1) of the Thirteenth Directive is clear and precise and refers only to Article 169(a) and (b) of the VAT Directive.
30 The Commission argues that the right of traders established outside the European Union to recover the input tax paid in a Member State for the purposes of the transactions referred to in Article 169(c) of the VAT Directive derives from Articles 169 to 171 of that directive. Article 170 establishes that right with respect to all the transactions referred to in Article 169 and does not provide for any derogation. Since the VAT Directive lays down the basic rules, while the Thirteenth Directive contains only implementing provisions regulating the arrangements for refund, the unconditional wording of Article 170 of the VAT Directive must take precedence over the wording of Article 2 of the Thirteenth Directive.
31 It is true that Article 170 of the VAT Directive provides, in general terms, as did Article 17(3) of the Sixth Directive, for a right to the refund of input tax where the goods and services subject to VAT are used for the ‘transactions referred to in Article 169’ of the VAT Directive.
32 Similarly, it is common ground that the purpose of the Eighth Directive is to lay down detailed arrangements for the refund of VAT paid in a Member State by taxable persons established in another Member State, its objective being therefore to harmonise the right to refund as provided for in Article 17(3) of the Sixth Directive (see, inter alia, Case C-136/99 Monte dei Paschi Di Siena [2000] ECR I-6109, paragraph 20, and Case C-35/05 Reemtsma Cigarettenfabriken [2007] ECR I-2425, paragraph 26); that is also the case with respect to the Thirteenth Directive as far as concerns taxable persons established in non-member countries.
33 However, it cannot be concluded therefrom, as the Commission submits, that Article 170 of the VAT Directive permits a derogation from the clear and precise wording of Article 2(1) of the Thirteenth Directive.
34 The Thirteenth Directive does not merely regulate the formal arrangements for implementing the right to the refund of VAT, but provides for a number of derogations from that right, as the Commission acknowledges in its written observations without challenging the validity. Among those derogations, in accordance with Article 2(2) of the Thirteenth Directive, is the Member States’ power to make the refund conditional upon the granting by third States of comparable advantages and, in accordance with Article 4(2) thereof, to provide for the exclusion of certain expenditure or to make refunds subject to additional conditions.
35 Therefore, the provisions of the Thirteenth Directive and, in particular, Article 2(1) thereof, must be considered as a lex specialis as compared with Articles 170 and 171 of the VAT Directive, preventing the right to a refund, set out in general terms in Article 170, from overriding the clear and precise wording of Article 2(1) of the Thirteenth Directive.
36 It follows that the question whether the Member States are required to grant a right to the refund of VAT for the transactions referred to in Article 169(c) of the VAT Directive to taxable persons established outside the European Union must be determined solely by reference to Article 2(1) of the Thirteenth Directive.
37 As regards the interpretation of Article 2(1) of that directive, the Commission submits, first of all, that it is clear from the drafting history that it cannot be presumed that the legislature of the European Union, by just mentioning in Article 2(1) of the Thirteenth Directive the transactions referred to in Article 169(a) and (b), wished to exclude the refund of VAT for the transactions referred to in Article 169(c). The wording of Article 2(1) of the Thirteenth Directive is based on an erroneous interpretation by the legislature of the European Union when it adopted Article 2 of the Eighth Directive, which is in almost identical terms to, and served as a model for, the drafting of the former provision.
38 In that connection, the Commission relies, first, on the Explanatory Memorandum to the Proposal for the Eighth Directive and asserts that the legislature, when drafting the Eighth Directive, did not refer to Article 17(3)(c) of the Sixth Directive because it erroneously considered that the transactions concerned were already taken into account in Article 17(3)(a) thereof, as referred to in Article 2 of the Eighth Directive.
39 Next, according to the Commission, the logic of the VAT system requires a right to a refund of VAT to be granted for the transactions referred to in Article 169(c) of the VAT Directive. According to that logic and international practice, no tax should be due when goods or services are exported. As regards, in particular, exempt transactions such as the insurance and financial transactions for which it is not usually possible to recover input tax, Article 169(c) of the VAT Directive is intended to make possible the recovery of the VAT inherent in the price of purchasing goods and services used for the performance of those transactions. Thus, the grant of a right to a refund of VAT prevents the trader established in the European Union from being disadvantaged compared with his competitors outside the Union.
40 Finally, the Commission takes the view that the comparison made between Article 2(1) of the Thirteenth Directive and Article 2 of the Eighth Directive shows that those two provisions must be interpreted in the same way. Notwithstanding the almost identical wording of those provisions, the United Kingdom construes Article 2 of the Eighth Directive as including the transactions mentioned in Article 169(c) of the VAT Directive, the position thus adopted by that Member State being therefore inconsistent. According to the Commission, if the interpretation of Article 2(1) of the Thirteenth Directive put forward by the United Kingdom were correct, it should also apply to Article 2 of the Eighth Directive, which would lead to repercussions for all the Member States which adopt such an interpretation of that article.
41 First of all, the latter argument must be dismissed as irrelevant.
42 The present action for failure to fulfil obligations only concerns whether the United Kingdom has failed to fulfil its obligations under Articles 169 to 171 of the VAT Directive and Article 2(1) of the Thirteenth Directive by refusing the recovery of input tax for the transactions referred to in Article 169(c) of the VAT Directive carried out by taxable persons not established in the territory of the European Union.
43 Neither the fact that the United Kingdom and the other Member States grant such a right to a refund of VAT to traders established within the European Union, by virtue of the Eighth Directive, nor the absence of any reasons justifying a divergent practice as regards the traders referred to by that directive, on the one hand, and those covered by the Thirteenth Directive, on the other, nor any repercussions at Member State level in the absence of such reasons, are factors capable of supporting the Commission’s interpretation of Article 2(1) of the Thirteenth Directive.
44 Next, as regards the argument based on the drafting history, it should be noted that Article 2 of the Proposal for the Eighth Directive, in which the Explanatory Memorandum referred to by the Commission appears, made reference, without further explanation, to ‘transactions referred to in Article 17(3) of the Sixth Directive’. Therefore, it cannot be regarded as established that the – according to the Commission – incorrect assessment in the Explanatory Memorandum was in fact the basis for the wording of Article 2 of the Eighth Directive or that of Article 2(1) of the Thirteenth Directive.
45 Furthermore, Article 5 of Directive 2008/9, which replaced the Eighth Directive, refers, like Article 2 of the Eighth Directive, to Article 169 ‘(a) and (b)’ of the VAT Directive. Therefore, the Commission’s argument implies, first, that the legislature of the European Union committed an error when it adopted the Eighth Directive, which was reproduced in the Thirteenth Directive and, second, that the legislature committed the same error when it adopted Directive 2008/9.
46 As regards the alleged error and the Commission’s argument that its reading of the relevant provision is also consistent with the logic of the common system of VAT, it must be observed that, even assuming the Commission’s submissions are correct, it is not for the Court, as the Advocate General observed in point 65 of his Opinion, to make such an interpretation with the aim of correcting Article 2(1) of the Thirteenth Directive.
47 In that connection, the Court held in Case C-475/01 Commission v Greece [2004] ECR I-8923 that the Hellenic Republic could legitimately base its national legislation on the clear wording of Article 23(2) of Council Directive 92/83/EEC of 19 October 1992 on the harmonisation of the structures of excise duties on alcohol and alcoholic beverages (OJ 1992 L 316, p. 21) authorising it to apply to OUZO a rate of excise duty lower than the minimum rate. Thus, the Court dismissed the Commission’s action alleging a failure by that Member State to fulfil its obligations under the first subparagraph of Article 90 EC, and in which it submitted that even where there is an explicit authorisation in secondary legislation, the Member States were in no way dispensed from the obligation to comply with primary legislation, so that, where a national provision was irreconcilable with primary legislation, the Member State was not entitled to rely on that authorisation.
48 In the same way, the United Kingdom, whose national law complies with the clear and precise wording of Article 2(1) of the Thirteenth Directive, cannot be accused of failing to fulfil its obligations specifically arising from that provision because it allegedly failed to interpret that provision with the aim of correcting it, in order to comply with the overall logic of the common system of VAT and to remedy an error of the legislature of the European Union alleged by the Commission which, it claims, is apparent from the Explanatory Memorandum in the Proposal for the Eighth Directive.
49 According to settled case-law, the principle of legal certainly requires that Community rules enable those concerned to know precisely the extent of the obligations which are imposed on them. Individuals must be able to ascertain unequivocally what their rights and obligations are and take steps accordingly (see Case C-345/06 Heinrich [2009] ECR I-1659, paragraph 44 and the case-law cited).
50 It is true that that case-law refers to the relationship between individuals and public authorities. However, as the Advocate General observed in point 64 of his Opinion, that case-law is also relevant in the context of the transposition of a directive in the area of taxation.
51 The Court cannot, in the face of the clear and precise wording of a provision such as Article 2(1) of the Thirteenth Directive, interpret that provision with the intention of correcting it and thereby extending the obligations of the Member States relating to it (see, by analogy, Case C-48/07 Les Vergers du Vieux Tauves [2008] ECR I-10627, paragraph 44).
52 It follows from all of the foregoing that the Commission’s action must be dismissed.