Flashback on ECJ cases C-446/98 (Fazenda Pública) – Significant distortion of competition – Criteria can be determined by Ministry of finance if allowed by national constititutionnal order

On December 14, 2000, the ECJ issued its decision in the case (C-446/98).

Context: Taxation – Sixth VAT Directive – Taxable persons – Bodies governed by public law – Letting of spaces for the parking of vehicles

Article in the EU VAT Directive

Article 4(5) of the Sixth VAT Directive (Article 13 of the EU VAT Directive 2006/112/EC).

Article 13
1. States, regional and local government authorities and other bodies governed by public law shall not be regarded as taxable persons in respect of the activities or transactions in which they engage as public authorities, even where they collect dues, fees, contributions or payments in connection with those activities or transactions.
However, when they engage in such activities or transactions, they shall be regarded as taxable persons in respect of those activities or transactions where their treatment as non-taxable persons would lead to significant distortions of competition.
In any event, bodies governed by public law shall be regarded as taxable persons in respect of the activities listed in Annex I, provided that those activities are not carried out on such a small scale as to be negligible.
2. Member States may regard activities, exempt under Articles 132, 135, 136 and 371, Articles 374 to 377, Article 378(2), Article 379(2) or Articles 380 to 390b, engaged in by bodies governed by public law as activities in which those bodies engage as public authorities.

Facts

The Portuguese tax authorities claimed from the CMP the sum of PTE 98 953 911, representing VAT on the receipts from parking meters and car parks of the city of Oporto for 1991 and 1992 and January to April 1993.
Since it considered that it was not a taxable person for VAT purposes, in that it had acted within the framework of the exercise of its public powers, the CMP brought an action for breach of law before the Tribunal Tributário de Primeira Instância (Tax Court of First Instance), Oporto, against the notices of assessment issued by the VAT authorities.
By its judgment the Tribunal Tributário granted the CMP’s application in so far as it related to its receipts from the operation of the Trindade car park, which was on the public property of the city, and from the operation of parking meters installed on public highways. The court ruled that the application was unfounded, on the other hand, as regards the revenue from the operation of car parks forming part of the city’s private property.
As neither party accepted the part of the judgment which was unfavourable to it, they both appealed to the Supremo Tribunal Administrativo.

Questions

- 1. Does the expression ”activities or transactions in which they engage as public authorities” in the first subparagraph of Article 4(5) of Directive 77/388/EEC (the Sixth Directive) cover the letting of spaces for the parking of vehicles (both on streets and in car parks) by the public authorities (a municipality)?
- 2. May the significant distortions of competition referred to in the second subparagraph of Article 4(5) of the Sixth VAT Directive be defined case by case by the Minister of Finance of a Member State?
- 3. If the national provision which empowers the Minister of Finance to define, case by case, significant distortions of competition is unconstitutional, in that it infringes the principle that taxation must have a legal basis, but conforms with Community law (with the Sixth Directive), must the national court comply with its constitution or must it, first and foremost, comply with Community law by virtue of the principle of the primacy of that law over constitutions?
- 4. Will the public authorities always be regarded as taxable persons where the activities in which they engage are not negligible, or are they taxable persons only as regards the activities or transactions listed in Annex D, to which the third subparagraph of Article 4(5) of the Sixth Directive refers?
- 5. May a national law authorise the Minister of Finance to define, case by case, what activities are being engaged in on a negligible scale?
- 6. For the purposes of the fourth subparagraph of Article 4(5) of the Sixth Directive, may a Member State regard an activity of letting spaces for the parking of vehicles, when it is carried on by a municipality, as an activity in which the municipality engages as a public authority, having regard to the provisions of Article 13B(b)(2) of the Sixth Directive?
- 7. As the parties to the main proceedings have not raised any question of the interpretation or application of the Sixth Directive, may the national court of its own motion interpret and apply the provisions of that directive when giving its final decision?

AG Opinion

(1) The provision of areas for the parking of vehicles (both on streets and in car parks) by municipalities or bodies governed by public law is covered by the expression ‘activities or transactions in which they engage as public authorities‘ where they engage in those activities themselves and under the special legal regime applicable to them – as bodies governed by public law – and in this case it is irrelevant to whom the areas belong. It is for the national court to classify the activity in question in the light of that criterion and of the way in which it is carried out.
(2) The second subparagraph of Article 4(5) of the Sixth VAT Directive 77/388/EEC is to be interpreted as precluding a national provision which authorises the Minister of Finance to define, case by case and with binding force, when there is significant distortion of competition within the meaning of the second subparagraph of Article 4(5).
(3) Municipalities and bodies governed by public law are not always taxable persons where the activities in which they engage are not negligible, but only as regards the activities or transactions listed in Annex D, in so far as these activities which they engage in as public authorities are not negligible.
(4) The third subparagraph of Article 4(5) of the Sixth Directive is to be interpreted as precluding a national provision which authorises the Minister of Finance to define, case by case and with binding force, what activities are being engaged in on a scale that is negligible for the purposes of the third subparagraph of Article 4(5).
(5) Where the provision of parking spaces by a municipality must be regarded as an activity it engages in as a public authority, it constitutes a non-taxable person in accordance with the first subparagraph of Article 4(5). In this case the fourth subparagraph of Article 4(5) is irrelevant.
(6) The national court must, of its own motion, apply the provisions of the directive when giving its final decision, even where none of the parties to the main proceedings has raised any question of the application of that directive. The national court is barred from interpreting the provisions of the directive, because of the necessity of uniform interpretation.

Decision

1. The letting of spaces for the parking of vehicles is an activity which, where it is carried on by a body governed by public law, is carried on by that body as a public authority within the meaning of the first subparagraph of Article 4(5) 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, if it is carried on under a special legal regime applicable to bodies governed by public law. That is the case where the pursuit of the activity involves the use of public powers.

2. The third subparagraph of Article 4(5) of Sixth Directive 77/388 must be interpreted as meaning that bodies governed by public law are not necessarily regarded as taxable persons in respect of the activities they engage in which are not negligible. Only if those bodies engage in an activity or perform a transaction listed in Annex D to that directive may the criterion of the negligible scale of that activity or transaction be taken into account with the aim, if national law makes use of the option provided for in the third subparagraph of Article 4(5) of Sixth Directive 77/388, of excluding them from being taxable persons for value added tax purposes where their activities are negligible.

3. The Finance Minister of a Member State may be authorised by a national law to define what is covered by, first, the concept of significant distortions of competition within the meaning of the second subparagraph of Article 4(5) of Sixth Directive 77/388 and, second, the concept of negligible activities within the meaning of the third subparagraph of Article 4(5) of that directive, provided that his decisions of application may be reviewed by the national courts.

4. The fourth subparagraph of Article 4(5) of Sixth Directive 77/388 must be interpreted as meaning that the absence of an exemption for the letting of spaces for the parking of vehicles, which follows from Article 13B(b) of that directive, does not prevent bodies governed by public law which carry out that activity from being treated as non-taxable persons for value added tax in respect of it, where the conditions stated in the first and second subparagraphs are satisfied.

5. A national court is entitled, and in certain cases obliged, to refer to the Court, even of its own motion, a question concerning the interpretation of Directive 77/388, if it considers that a decision on the point by the Court is necessary for it to give judgment, and once it has made that referenceit is bound by the Court’s decision when it gives final judgment in the main proceedings.

Summary

The rental of parking spaces by a public body may be considered a public authority activity if it involves the use of government powers and is carried out under specific regulations.
Public bodies may not be considered taxable persons for activities that are not insignificant unless those activities are listed in Annex D of the Sixth Directive and national law allows for exclusion.
National law may authorize the Minister of Finance to determine significant competition distortion and insignificant activities, subject to court review.
The exemption from VAT for the rental of parking spaces does not apply to public bodies, but they may not be liable for VAT if certain conditions are met.
National courts can request interpretation of the Sixth Directive and must abide by the Court’s decision in their final judgment.

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