Flashback on ECJ cases C-40/00 (Commission v France) – France can not withdraw full right to deduct VAT if if there was partial deduction before

On June 14, 2001, the ECJ issued its decision in the case C-40/00 (Commission v France).

Context: Failure by a Member State to fulfil its obligations – Article 17(2) and (6) of the Sixth VAT Directive – Reintroduction, after the date of entry into force of the Directive, of a total abolition of the right to deduct VAT charged on diesel used as fuel for vehicles and machines on the purchase of which no VAT is deductible.

Article in the EU VAT Directive

Article 17(2)(a) of the Sicth VAT DIrective (Article 168(a) of the EU VAT Directive 2006/112/EC).

Article 168
In so far as the goods and services are used for the purposes of the taxed transactions of a taxable person, the taxable person shall be entitled, in the Member State in which he carries out these transactions, to deduct the following from the VAT which he is liable to pay:
(a) the VAT due or paid in that Member State in respect of supplies to him of goods or services, carried out or to be carried out by another taxable person;
(b) the VAT due in respect of transactions treated as supplies of goods or services pursuant to Article 18(a) and Article 27;
(c) the VAT due in respect of intra-Community acquisitions of goods pursuant to Article 2(1)(b)(i);
(d) the VAT due on transactions treated as intra-Community acquisitions in accordance with Articles 21 and 22;
(e) the VAT due or paid in respect of the importation of goods into that Member State.

Facts

By reintroducing from 1 January 1998 a total prohibition on the right to deduct value added tax (hereinafter ‘VAT”) on diesel used as fuel for vehicles on the purchase of which no VAT is deductible,
after having, on several occasions, introduced a partial right to deduct,
the French Republic has failed to fulfil its obligations under Article 17(2) of the 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), in the version resulting from Council Directive 95/7/EC of 10 April 1995 amending Directive 77/388 and introducing new simplification measures with regard to value added tax – scope of certain exemptions and practical arrangements for implementing them (OJ 1995 L 102, p. 18, hereinafter ‘the Sixth Directive’)

Accordingly, it must be held that by reintroducing from 1 January 1998 a total prohibition on the right to deduct value added tax on diesel used as fuel for vehicles on the purchase of which no value added tax is deductible, after having introduced a partial right to deduct, the French Republic has failed to fulfil its obligations under Article 17(2) of the Sixth Directive.

AG Opinion

None

Decision

1. Declares that by reintroducing from 1 January 1998 a total prohibition on the right to deduct value added tax on diesel used as fuel for vehicles on the purchase of which no value added tax is deductible, after having introduced a partial right to deduct, the French Republic has failed to fulfil its obligations under Article 17(2) of the 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, in the version resulting from Council Directive 95/7/EC of 10 April 1995 amending Directive 77/388 and introducing new simplification measures with regard to value added tax – scope of certain exemptions and practical arrangements for implementing them.

2. Orders the French Republic to pay the costs.

Summary

By completely withdrawing, with effect from 1 January 1998, the right to deduct VAT on diesel fuel used for vehicles and machinery for which there is no right to deduct, after having granted a partial deduction, the French Republic has failed to fulfill its obligations under to it pursuant to Article 17(2) of the Sixth Directive.

Source