OPINION OF ADVOCATE GENERAL SIR GORDON SLYNN

DELIVERED ON 18 NOVEMBER 1981

My Lords,

This case comes before the Court by way of a reference for a preliminary ruling made by the Finanzgericht in Münster in the Federal Republic of Germany on 27 November 1980. The order was made in an action brought by a Mrs Ursula Becker, a self-employed credit negotiator, against the Finanzamt Münster-Innenstadt (“the Finanzamt”). In that action she claims to be exempted from VAT for the period March to June 1979 by virtue of Article 13 B (d) 1 of Council Directive 77/388 of 17 May 1977 (Official Journal L 145/1 of 13 June 1977).

Article 1 of the directive provides that the Member States “shall modify their present value-added tax systems in accordance with the following articles” and “shall adopt the necessary laws, regulations and administrative provisions so that the systems as modified enter into force at the earliest opportunity and by 1 January 1978 at the latest.” A transitional period, fixed to last “initially” for five years from 1 January 1978 was instituted by Article 28 (4) in order to allow time for national laws to be gradually adapted in the areas specified in Article 28 (3), but none of these appears to be relevant to this case.

Article 13 B of Directive 77/388 provides, so far as is relevant: “Without prejudice to other Community provisions. Member States shall exempt the following under conditions which they shall lay down for the purpose of ensuring the correct and straightforward application of the exemptions and of preventing any possible evasion, avoidance or abuse: ... (d) the following transactions: 1 the granting and the negotiation of credit and the management of credit by the person granting it ...”.

The Federal Republic of Germany was one of several Member States which found itself unable to implement the directive within the period fixed for doing so. In consequence, the Council adopted Directive 78/583 of 26 June 1978 (Official Journal L 194/16 of 19 July 1978) which extended the deadline for the implementation of Directive 77/388 to 1 January 1979. Despite this extension, Germany was still unable to comply with the directive in time and, on 13 August 1979, the Commission began an action before the Court (Case 132/79) under Article 169 of the EEC Treaty. Two months later, on 26 November 1979, a law was finally passed implementing the directive with effect from 1 January 1980 and the Commission discontinued its action.

The present case is thus concerned with the period during which, contrary to the provisions of Article 1 of Directive 77/388, the Federal Republic of Germany had not implemented the directive.

It appears that, in her preliminary tax returns for the period March to June 1979 (after the extended deadline for implementing the directive had expired and before the German Government had acted), Mrs Becker entered the “credit negotiation transactions” she had completed in those months as being exempt from VAT. In consequence she made no claim to deduct the input tax charged in respect of any linked transactions. The Finanzamt rejected her claim that her credit negotiation transactions were exempt and assessed her to tax in accordance with the German legislation then in force. She objected to this and applied to the Finanzgericht asking it to fix the VAT for the period in question at DM 0. The only basis for doing this seems to have been Article 13 B (d) 1 of the directive. The Finanzamt argued that the directive could not be relied on by Mrs Becker because, in accordance with a departmental order issued by the Finance Minister for North Rhine-Westphalia, Article 13 B leaves the Member States a certain area of discretion and is not therefore directly applicable. At the end of the year Mrs Becker submitted her annual return in which she did claim to deduct input tax but this appears to have been on the basis of the Finanzamts view that she could not claim exemption. Whether, as was suggested, she was acting in an inconsistent way, it does not seem to me to be necessary to decide in order to answer the question referred to the Court.

According to the observations submitted on behalf of the German Government, it appears that this problem only arises in relation to the negotiation of credit because German law relating to the grant of credit and the management of it by the person granting it already complied with the directive. The question referred to the Court for a preliminary ruling by the Finanzgericht simply asks whether Article 13 B (d) 1 is directly applicable in relation to transactions consisting of the negotiation of credit in Germany from 1 January 1979. Written and oral observations have been submitted on behalf of the French and German Governments and the Finanzamt, all to the effect that the question should be answered in the negative, and by the Commission, which is of the contrary opinion. Mrs Becker herself has not submitted observations.

Counsel for the German Government questioned whether the phrase “directly applicable”, used by the Finanzgericht in the order for reference, adequately expressed the principle laid down in a number of decisions of the Court that while under Article 189 of the EEC Treaty, regulations alone are said to be directly applicable, other acts, and in particular directives, may produce similar effects.

Previous decisions of the Court seem to me to make it plain that the right question is not whether a directive is “directly applicable” in the strict sense i.e. in the sense in which that phrase is used in Article 189 of the EEC Treaty.

In Case 41/74 Van Duyn v Home Office [1974] ECR 1337 the Court made it clear that merely because “by virtue of the provisions of Article 189 regulations are directly applicable and consequently, may by their very nature have direct effects, it does not follow from this that other categories of acts mentioned in that Article can never have similar effects ... It is necessary to examine, in every case, whether the nature, general scheme and wording of the provision in question are capable of having direct effect on the relations between Member States and individuals”. The Court's judgments in Case 51/76 Nederlandse Ondernemingen v Inspecteur der Invoerrechten en Accijnzen, [1977] ECR 113, Case 148/78 Pubblico Ministero v Ratti [1979] ECR 1629 and Case 102/79 Commission v Belgium [1980] ECR 1473 establish that if a directive is addressed to a Member State, that State is under a duty to give effect to it even though the choice of form and methods by which the results of the directive are to be achieved is left to the Member State. If the Member State fails to implement the directive, an individual may rely on its terms, if these are unconditional and sufficiently precise, as against the Member State. The latter cannot take advantage of its own failure to act in due time by contending that the directive is not yet in force.

The question is thus not whether the directive is “directly applicable” but whether its terms are such that the individual can rely upon it against the Member State who in breach of duty has failed to implement it.

A number of arguments have been put forward by the German authorities and the French Government to show why Mrs Becker cannot rely on Directive 77/388.

In the first place it is said by the German Government that, when the Council discussed the draft of the directive, the Commission's representative said that what is now Article 13 would be so worded as to ensure that taxpayers would have no right to exemption. That in my view should not be taken into consideration in answering the question before the Court. Whether a particular provision of a directive can be relied upon, should be answered by reference to the terms of the directive itself, and not on the basis of an unpublished declaration made by a representative of one of the institutions involved in the legislative process explaining his understanding of the intention of that institution.

Then, it was said on behalf of the French Government, that the Council, by necessary implication, excluded the possibility of the directive having direct effect when it adopted Directive 78/583, which extended the deadline for the implementation of Directive 77/388. Counsel for the Commission sought to rely on an unpublished declaration in the minutes of the Council, made at the time of the adoption of Directive 78/583, to show that the Council had not in fact intended to prejudice any rights that might have been acquired under Directive 77/388. I would disregard this declaration also as not being a matter properly to be taken into account.

I do not in any event accept the French Government's argument. Directive 78/583 does not deal with the nature, the substance or the general scheme of the provisions introduced by Directive 77/388. The former merely sets a new date for the implementation of the provisions of the latter. Whatever the position between the initial date fixed and the subsequent date to which the period for implementation is extended, it seems to me that once the new date has passed the question in respect of subsequent periods is whether the initial directive, otherwise unaltered, can be relied on. The fact that the date for implementation has been extended does not in my view expressly or impliedly establish that the individual cannot thereafter rely upon its terms against the Member State in default.

On behalf of the German Government, it was submitted that a provision of a directive can only be relied on by the individual if it is advantageous to the individual. In the present case, it is said, Article 13 B (d) 1 may be advantageous and may be disadvantageous or it may produce results which are severally advantageous and to the disadvantage of the individual. Therefore he cannot rely upon it. No decision of the Court seems to me to have been cited nor am I aware of any, which establishes this requirement. If, as I consider, it is a correct reading of Article 189 that a directive, not being addressed to an individual cannot of itself impose obligations on him, it does not follow that he cannot rely on it if it may be in some way to his detriment. This argument seems to confuse advantages and disadvantages in fact with rights and obligations in law. The examples given by counsel for the German Government of the various effects of Article 13 B (d) 1 in different circumstances show only that, as a matter of fact, its application may or may not be advantageous. If Article 13 B (d) 1 can be relied on by an individual against a defaulting Member State, it will be so because it imposes an obligation upon the Member States to grant individuals the right to be exempt rom taxation in respect of certain transactions. It is to be expected that an individual is only likely to rely on a directive when it is to his advantage to do so, but the fact that it may be to his disadvantage does not alter his position in law in so far as the directive is concerned.

Leaving aside these preliminary objections to Mrs Becker's claim, I turn to what seems to be the central question, namely, was the Federal Republic of Germany obliged to implement Article 13 B (d) 1 and are the terms unconditional and sufficiently precise that an individual can rely on them even if the Member State has not implemented them?

It is said, first, that because of the opening words of Article 13 B, there is no unconditional or sufficiently precise obligation to exempt the acts or transactions referred to. This is because there is reserved to the Member State the power to lay down conditions “for the purpose of ensuring the correct and straightforward application of the exemptions and of preventing any possible evasion, avoidance or abuse”.

The Commission has submitted that the conditions to which exemption under Article 13 B are subject are ancillary and do not affect the unconditional or imperative nature of the obligation imposed on the Member States. They only have discretion to ensure the correct application of the exemptions provided for, and the prevention of evasion, avoidance and abuse.

Article 189 of the EEC Treaty itself makes it plain that the choice of form and methods may be left to the national authorities. Such a discretion does not prevent a directive from being unconditional and sufficiently precise as to the result to be achieved. That a margin of discretion may be left to the national authorities, without the directive being put outside the category of those which can be relied upon, also appears from the Court's judgments in the Nederlandse Ondernemingen case and in Case 131/79, R. v Secretary of State for Home Affairs, [1980] ECR 1585. If, on the other hand, it is left to the discretion of the Member State as to whether the provision is implemented at all, then the position is different.

In my opinion the Commission's contention here is clearly right. The conditions which may be laid down are limited to those which provide the means by which (a) the exemptions can be applied correctly and in a straightforward way so that justified exemptions are upheld, unjustified claims rejected; and (b) evasion, avoidance and abuse of the system of exemptions can be prevented. Where specific exempt transactions are defined, it is not open to the Member State to modify the description of the transaction. The fact that the Member State may by way of exclusion restrict the ambit of exemption B (b) in Article 13 does not take away the precision of the transactions exempted in B (d), nor does it do anything to render their application conditional. The power to lay down the conditions specified in the opening words of Article 13 B does not in my opinion detract from the clear obligation to exempt “the negotiation of credit”. The obligation to achieve that result is precise and unconditional.

It is then argued that Article 13 B (d) 1 is an integral pan of the whole scheme created by the Directive and that in a number of respects it is clear that no unconditional obligation is imposed on Member States. By way of example the discretion conferred on Member States in Anieles 5 (3) and (5), 6 (3), 9 (3) and 28 (3) are relied on. It does not seem tc me that all the provisions of a directive have to be unconditional before some which are unconditional can be relied upon. Indeed the decision in the Nederlandse Ondernemingen case seems to suppon the contrary view. If those provisions which appear unconditional are dependent on those which are conditional or discreţionar), the unconditional ones may not be themselves available to an individual. In the present case, the exemption from taxation in respect of the negotiation of credit in no way hinges on the discretionary or conditional powers conferred on Member States by other anieles.

A funher argument put forward was that any right to exemption is subject to the exercise by the Member States of their right under Article 13 C of the directive to allow taxpayers to opt for taxation. This reads:

“Member States may allow taxpayers a right of option for taxation in cases of:

Member States may restrict the scope of this right of option and shall fix the details of its use.”

It was asserted that the direct effect of Article 13 B would prevent or exclude the exercise by a Member State of its discretion under Article 13 C. I do not accept that this follows from the wording of the directive. At the hearing, counsel for the German Government conceded that the operation of Article 13 B was not dependent on the exercise by a Member State of its discretion under Article 13 C. That is surely right. The most that Article 13 C does is to allow the Member States, if they wish, to grant taxpayers a right of option for taxation. This necessarily implies that the application of the exemption provisions is not dependent on Article 13 C. Indeed, it appears to presuppose that Article 13 B (the exemption) can be relied upon, unless the Member State, by an independent exercise of discretion, grants a right of option for taxation. That a Member State is given the power to restrict the scope of the right of option and to fix the details of its use affects the exercise of the right of option and not the existence of the right to exemption. Nor does the power to grant a right of option to be taxed amount to a discretion in Member States to exclude credit negotiation from exemption altogether.

Counsel for the French Government sought to draw a comparison between these provisions and the deduction provisions of Directive 67/228 of 11 April. 1967 (OJ, Special Edition 1967, p. 16), which, he said, the Court had held lacked direct effect in the Nederlandse Ondernemingen case. Although mention was made of paragraphs 2b and 27 of the judgment, insufficient weight was given to paragraphs 28 and 29 which follow. These indicate that it was the Court's view that the principle of immediate deduction had direct effect save where the Member States had been allowed a margin of discretion to derogate from or make an exception to the principle and where “the matter in dispute depends on one of the provisions which, either in express terms or through the indefinite nature of the concepts used, leave the legislative or administrative authorities of the Member States a margin of discretion concerning the material contents of the exceptions or derogations authorized.”

It is also contended that there is, or may be, a conflict, if exemption can be claimed, with the provisions of Articles 21 (1) (c) and 22 (3) of the directive under which it is said that, if an amount of VAT is stated in an invoice, it must be paid without any right to deduct pursuant to Article 17 (2). If, as is contended, this follows as a result, it seems to me to flow from the scheme set up and not to be such a conflict, between the various provisions of the scheme, as compels the conclusion that Article 13 B (d) 1 cannot be relied upon. Moreover, it is argued that if Mrs Becker can claim exemption, the tax position of her clients and others involved in a chain of transactions (as well as other individuals in her position) would be affected. A ruling by the Court in Mrs Becker's favour would, it is said, create uncertainty and difficulties in reopening transactions already disposed of. Whether the administrative difficulties referred to by counsel for the Finanzamt and the German Government would in fact arise is a matter of speculation. The Court does not know whether other persons would or indeed would be entitled under German law to seek to reopen assessments already made. It may be in their interests not to seek to do so. Even if administrative difficulties do arise from demands to reopen such assessments, it seems to me that they flow essentially from the failure of the Federal Republic of Germany to implement the directive. They cannot be prayed in aid to prevent an individual relying on the provisions of the directive if he is otherwise entitled to do so.

Accordingly, it is my opinion that the question referred to the Court by the Finanzgericht should be answered to the effect that Article 13 B (d) 1 may be relied on by private persons as against the Finanzamt in respect of their tax liability for the year 1979.