Joined Cases C-286/94, C-340/95, C-401/95 and C-47/96

Garage Molenheide BVBA and Others

v

Belgian State

References for preliminary rulings from the Hof van Beroep, Antwerp, the Rechtbank van Eerste Aanleg, Brussels and the Rechtbank van Eerste Aanleg, Bruges

‛Sixth Directive (77/388/EEC) — Scope — Right to deduction of VAT — Retention of balance of VAT due — Principle of proportionality’

Opinion of Advocate General Fennelly delivered on 20 March 1997   I-7283

Judgment of the Court (Fifth Chamber), 18 December 1997   I-7311

Summary of the Judgment

Tax provisions — Harmonization of laws — Turnover taxes — Common system of value added tax — Deduction of input tax — Refund of excess — Retention where there is a presumption of fraud or other VAT debts — Whether permissible — Condition — Proportionality

(Council Directive 77/388, Art. 18(4))

Article 18(4) of the Sixth Directive (77/388) on the harmonization of the laws of the Member States relating to turnover taxes, which allows the Member States, where the total amount of deductions of input VAT exceeds the amount of tax due, either to carry the excess forward to the following period or to refund it, does not in principle preclude national measures allowing the competent fiscal authorities to retain, as a protective measure, refundable amounts of VAT where there are grounds for presumption of tax evasion or where those authorities claim that there is a VAT debt owing to them which is not apparent from the taxable person's returns and which the taxable person contests.

However, the principle of proportionality is applicable to such measures adopted by a Member State in the exercise of its powers relating to VAT, since, if those measures went further than necessary in order to attain their objective, they would undermine the principles of the common system of VAT and in particular the rules governing deductions which constitute an essential component of that system.

It is for the national court to examine whether or not the measures in question and the manner in which they are applied by the competent administration are proportionate. In the context of that examination, if the national provisions or a particular construction of them would constitute a bar to effective judicial review, in particular review of the urgency and necessity of retaining the refundable VAT balance, and would prevent the taxable person from applying to a court for replacement of the retention by another guarantee sufficient to protect the interests of the Treasury but less onerous for the taxable person, or would prevent an order from being made, at any stage of the procedure, for the total or partial lifting of the retention, the national court should disapply those provisions or refrain from placing such a construction on them. Moreover, in the event of the retention being lifted, calculation of the interest payable by the Treasury which did not take as its starting point the date on which the VAT balance in question would have had to be repaid in the normal course of events would be contrary to the principle of proportionality.