Flashback on ECJ Cases C-10/92 (Balocchi) – Interim VAT Payments on Transactions Not Yet Carried Out Are Contrary to the Sixth Directive

On 20 October 1993, the ECJ (Full Court) issued its judgment in the case C‑10/92 (Maurizio Balocchi v Ministero delle Finanze dello Stato), a reference for a preliminary ruling from the Tribunale di Genova (Italy) on the interpretation of Articles 10 and 22(4) and (5) of the Sixth VAT Directive (77/388/EEC). [eur-lex.europa.eu], [app.livv.eu]

Facts

Mr Maurizio Balocchi, an Italian taxable person, challenged before the Tribunale di Genova the obligation, under Italian VAT law, to make a year-end interim VAT payment covering a period that had not yet expired. [app.livv.eu]
Under the general Italian VAT regime, the tax period was fixed at one calendar year (1 January – 31 December). Taxable persons had to file an annual VAT return by 5 March of the following year, but had to make monthly or quarterly instalments during the year, depending on turnover, with the balance settled (or refund claimed) upon the annual return. [app.livv.eu]
Article 6, second paragraph, of Law No 405/90 of 29 December 1990, in force from 1 January 1991, changed the rules for the last quarter/last month of the year. Taxable persons were required, by 20 December at the latest, to pay by way of interim payment:
- Monthly filers: an amount equal to 65 % of the VAT paid (or due) for December of the previous year (with an option to elect 65 % of the estimated VAT for the current December instead). [app.livv.eu]
- Quarterly filers: a comparable 65 % advance calculated on the previous year’s fourth quarter. [app.livv.eu]
The result was that taxable persons had to pay VAT on transactions not yet carried out, since the chargeable event/chargeability for those transactions would only occur after the 20 December cut-off. [eur-lex.europa.eu]
Mr Balocchi challenged this regime as incompatible with the Sixth VAT Directive; the Tribunale di Genova referred preliminary questions to the CJEU. [app.livv.eu]

Questions

The Tribunale di Genova essentially asked whether:

Article 10 of the Sixth Directive (which links chargeability of VAT to the actual supply of goods or performance of services) and Article 22(4) and (5) (which govern periodical returns, payment of the net VAT amount and Member States’ power to request interim payments) preclude a national rule obliging taxable persons to pay, before the end of the tax period, a fixed percentage (65 %) of a VAT amount relating to a period which has not yet expired — and therefore, in some cases, on transactions not yet carried out. [eur-lex.europa.eu], [eur-lex.europa.eu]
If so, whether the relevant provisions of the Sixth Directive have direct effect and can be relied on by individuals against the Member State. [eur-lex.europa.eu]

Decision

The Court ruled that:

It is contrary to Article 10 and Article 22(4) and (5) of the Sixth Council Directive (77/388/EEC) — which provide, first, that VAT becomes chargeable at the time when the goods are delivered or the services are performed and, secondly, that Member States may derogate from the rule that payment must be made when the periodical return is submitted by demanding interim payment — for provisions of national law to require taxable persons to pay VAT equal to 65 % of the total chargeable amount in respect of a period which has not yet expired, with the result that taxable persons, in certain circumstances, have to pay tax on transactions which have not yet been carried out. [eur-lex.europa.eu], [eur-lex.europa.eu]

The Court further confirmed that the relevant provisions of the Sixth Directive are sufficiently clear, precise and unconditional to be relied upon directly by individuals against the Member State (direct effect). [eur-lex.europa.eu]

Argumentation (Key Points)

Chargeability follows the taxable event: Under Article 10(1) and 10(2) of the Sixth Directive, the chargeable event occurs, and VAT becomes chargeable, when the goods are delivered or the services performed. VAT can therefore only be levied on transactions that have already taken place. [eur-lex.europa.eu]
Interim payments are permitted but limited: Article 22(4) and (5) allow Member States to derogate from the rule that VAT must be paid upon submission of the periodical return by requesting interim payments. However, such interim payments must still relate to VAT that has already become chargeable — i.e. to transactions already carried out during the current tax period. [eur-lex.europa.eu]
Boundary crossed by the Italian regime: By requiring, on 20 December, a payment based on 65 % of an amount for a period that ends on 31 December, the Italian rule inevitably captured future transactions for which no chargeable event had yet occurred. This is incompatible with Articles 10 and 22(4)–(5). [app.livv.eu]
Option to pay on estimated current December VAT does not cure the defect: Even though taxable persons could elect to pay 65 % of an estimate of the current December’s VAT, the Court found that the system still forced payment on transactions not yet carried out. [eur-lex.europa.eu]
Principle of fiscal neutrality and legal certainty: By anticipating tax liability before the chargeable event, the Italian mechanism imposed a cash-flow disadvantage on taxable persons that went beyond what the Directive permits, distorting the common system of VAT.
Direct effect: The relevant provisions being unconditional and sufficiently precise, individuals could rely on them before national courts to disapply the incompatible national provision. [eur-lex.europa.eu]
Procedural points: The Court also confirmed (i) that a national court may make a reference under (then) Article 177 EEC without prior inter partes debate — the assessment being for the national judge — and (ii) that the CJEU will not verify whether the referring decision complies with the national rules on court organisation. [eur-lex.europa.eu]

Source

Judgment of the Court of 20 October 1993, C‑10/92 Balocchi v Ministero delle Finanze, ECLI:EU:C:1993:846 – EUR‑Lex full text [eur-lex.europa.eu]
Case summary – EUR‑Lex summary [eur-lex.europa.eu]
Opinion of AG Jacobs, ECLI:EU:C:1993:319 – https://curia.europa.eu/juris/liste.jsf?num=C-10/92 [eur-lex.europa.eu]
Sixth Council Directive 77/388/EEC of 17 May 1977 – EUR‑Lex

Similar ECJ Cases

C‑8/81 (Becker) – direct effect of unconditional and sufficiently precise provisions of the Sixth Directive. [eur-lex.europa.eu]
C‑65/81 (Reina) – admissibility of a preliminary reference: not for the CJEU to verify compliance with national procedural rules. [eur-lex.europa.eu]
C‑70/77 (Simmenthal) – direct effect and the primacy of Community law over incompatible national provisions. [eur-lex.europa.eu]
C‑144/94 (Italittica) – Article 10(2) and derogations from the general rule on chargeability of VAT.
C‑395/11 (BLV Wohn- und Gewerbebau) – timing of chargeability and the scope of Member States’ discretion under Article 10.
C‑107/13 (FIRIN) – chargeability of VAT on advance payments and the link to actual supplies.

(Full texts available on https://curia.europa.eu/juris/recherche.jsf?language=en.)

Reference to the Case in the Other EU Member States

Balocchi remains a foundational ruling on the temporal boundary of Member States’ power to levy VAT: the tax cannot be demanded before the chargeable event has occurred. It is regularly cited across EU Member States whenever national anti-avoidance or cash-flow-oriented measures anticipate VAT collection, e.g. on advance payments, prepayments and estimated liabilities. [app.lexploria.com]
The judgment has been referenced in subsequent CJEU case law on chargeability and interim payments, in national doctrine on the direct effect of the VAT Directive, and in commentary discussing the compatibility of quick-fix cash-flow measures adopted by Member States with Article 63 et seq. of the VAT Directive 2006/112/EC (successors to Article 10 of the Sixth Directive). [app.lexploria.com]