(1)

If the principle of the free movement of goods is considered in the present case, the simple fact that the secondhand product has passed from one Member State to another has made it more expensive. However, although the taxation to which the boat was subject in the Netherlands was imposed on importation, it cannot be considered as a charge having effect equivalent to a customs duty within the meaning of Article 12 of the Treaty.

It is internal taxation which is an integral pan of the fiscal system in relation to turnover taxes. The fact that it may apply, according to different criteria and at a different stage, to domestic and imported products in no way deprives it of that characteristic but at most has to be considered in the light of the tax provisions of the Treaty.

Those provisions which are set out in Chapter 2 of Title I (Common Rules) of Part Three (Policy of the Community) of the Treaty are on a par with those relating to the elimination of customs duties which form pan of Chapter 1 of Title I (Free movement of goods) of Pan Two (Foundations of the Community) of the Treaty.

As the French Government pertinently pointed out in its oral observations, that was confirmed by the judgment of the Coun of 22 October 1974 in Case 27/74 Demag ([1974] ECR 1037) of which I will quote the sixth paragraph at p. 1045:

“Articles 12 and 13 on the one hand and 95 on the other cannot be applied jointly in the same case, since charges having an effect equivalent to customs duties on the one hand and internal taxation on the other are subject to different systems and provisions.

Funher, it is not only turnover tax and charges of a similar nature which are to be regarded as internal taxation but also the charges and other measures intended to compensate the effects of these charges with regard to import and export of goods.”

The consequence of the special nature of the tax provisions is that they are independent of the provisions of the customs union. It is not therefore possible to make the latter prevail over the former or to resolve the difficulties involved in implementing the latter by having recourse to the “effectiveness” of the former: a customs union is not synonomous with a tax union.

(2)

It had not escaped the notice of the draftsmen of the Treaty that, depending on the procedures laid down for its application, direct or indirect taxation is capable of presenting an obstacle to the achievement of the aims which they had set themselves.

As regards internal taxation of any kind imposed on products directly or indirectly, the draftsmen of the Treaty were particularly concerned with turnover uut (Chapter 2 of Title I; Common Rules).

National taxation and repayments of this nature were the subject of Articles 95, 96 and 97. I say “were”, for the laws of the various Member Sutes in that field have begun to be harmonized “in the interest of the common market”, as provided for in Article 99, except. in the case of Greece where the Community value-added tax is not yet in force.

The first Council Directive of 11 April 1967 on the harmonization of legislation of Member States concerning turnover taxes provided that the Member States had to replace their systems of turnover taxes by a common system of value-added tax. Its philosophy was expounded in the opinion delivered by Mr Advocate General Mayras in Case 51/76 Nederlandse Ondernemingen ([1977] ECR 113) in which judgment was given on 1 February 1977. Let us recall that according to that system at each stage of taxation value-added tax is chargeable and calculated at the relevant rate on the price of the goods or service after deduction of the amount of value-added tax borne directly by the cost of the various price components. This system, which ensures the neutrality of turnover tax as regards the origin of the goods and of the services provided involves, as regards trade between Member States, the abolition of remissions at the frontiers in respect of this tax which had previously been permitted under Articles 95 and 96-of the Treaty (Article 2 of the First Council Directive of 11 April 1967).

It was the Second Council Directive, adopted on the same day, which in fact established the principles governing the structure of and the procedures for implementing the common system of value-added tax.

The Sixth Council Directive of 17 May 1977 on the uniform basis of assessment of value-added tax also concerned with the abolition of tax frontiers in order to achieve in time a market having the same characteristics as those of a genuine common market. Although that directive, as we shall see, has to be complemented, it already constitutes a genuine common code of value-added tax.

The mechanism of deductions (Article 17 of the Sixth Directive) remains the cornerstone of the common system. At each stage of production or marketing of goods the sum to be paid to the tax authorities is determined by deducting from the amount of chargeable tax the tax paid by the suppliers at the previous stage. A taxable person is entitled to deduct from the value-added tax which he is liable to pay the value-added tax charged at a previous stage on goods supplied and services rendered by another taxable person, on imported goods and on goods delivered and services rendered to himself.

Article 17 (4) provides:

“The Council shall endeavour to adopt before 31 December 1977, on a proposal from the Commission and acting unanimously, Community rules laying down the arrangements under which refunds are to be made in accordance with paragraph (3) to taxable persons not established in the territory of the country.” (Emphasis added.)

Article 17 (6) provides:

“Before a period of four years at the latest has elapsed from the date of entry into force of this directive [the date was originally 1 January 1978 but was altered to 1 January 1979 in the case of Denmark, the Federal Republic of Germany, France, Ireland, Italy, Luxembourg and the Netherlands], the Council, acting unanimously on a proposal from the Commission, shall decide what expenditure shall not be eligible for a deduction of value-added tax. Value-added tax shall in no circumstances be deductible on expenditure which is not strictly business expenditure, such as that on luxuries, amusements or entertainment.

Until the above rules come into force, Member States may retain all the exclusions provided for under their national laws when this directive comes into force.”

Thus turnover taxes levied in the Member States became partially harmonized. They have, at least to some degree, lost their character of national taxation and become part of a “common system”.

There is an additional reason for considering that turnover tax levied according to the “common system of value-added tax” has a Community character. Since the Council Decision of 21 April 1970 on the replacement of financial contributions from Member States by the Community's own resources, “such resources shall include ... those accruing from the value-added tax and obtained by applying a rate not exceeding 1% to an assessment basis which is determined in a uniform manner for Member States according to Community rules”. (Article 4 (1)). Council Regulation No 2892/77 of 19 December 1977 implemented the Decision of 21 April 1970 as regards own resources derived from value-added tax.

In technical terms that basis is the “real basis of assessment” of the last stage in the application, that is to say, the price “exclusive of value-added tax” of sales and services to the consumer who is rot entitled to deduct previous tax.

It follows not only that the taxation in question levied in the Netherlands is not a charge having an effect equivalent to a customs duty within the meaning of Article 12 of the Treaty but also that, properly speaking, it is not “internal taxation” within the meaning of Article 95, as are still, for example, excise duties on alcoholic beverages, tobacco, petroleum products, stamp duties or other taxes which cannot be characterized as turnover taxes (cf. Article 33 of the Sixth Directive). It also follows that although Anieles 95 and 96 still apply to such duties or taxes they have ceased to apply to turnover taxes levied according to the common system of value-added tax.

“(1)

The supply of goods or services effected for consideration within the territory of the country by a taxable person acting as such;

(2)

The importation of goods.”

(1)

Even the definition of secondhand goods is not simple. In a general way it may be said that secondhand goods are goods which may, if necessary after being reconditioned, be reused in the place of new goods serving the same purpose.

But that description covers:

All such goods have the characteristic that once they have reached the ultimate consumer at the end of a series of trade transactions they may, after some use, be reintroduced into trade or use. No matter to what category they belong they may have moreover the characteristic, in contrast to new goods, of being able to be transferred without the intervention of a trader.

Thus in the present case the boat which was bought was used, at least I assume so, in pan in France if it had been bought there new and had been registered there, and in pan in the Netherlands, the Member State into which it was then imponed.

Let me say that with regard to the Netherlands turnover tax Mr Van Zanten is the taxable person whereas the Gaston Schul company is liable for the tax.

When goods held by a private person, who is a nontaxable ultimate consumer, are acquired secondhand by a taxable person, a “residual” tax burden is contained in the purchase price paid by the taxable person. When in turn he resells the goods (possibly after repair) and he cannot deduct the amount of the tax burden borne at the previous stage, the value-added tax, in the absence of a special scheme, applies to the whole resale price and not simply the value which the reseller may have added. Goods exempt from the right of deduction are subjected to double taxation and for this reason the product sold to the new ultimate consumer is burdened with a tax “residue”.

In the same way, when a pleasure boat belonging to a private person, a nontaxable ultimate consumer, is resold secondhand to another nontaxable private person, there is a tax residue in the price charged to the latter since the seller has not been able to deduct the value-added tax paid on the boat when it was new. The result is an aggregation of tax.

Achievement of the objective of neutrality in taxation, and thus taxation of secondhand goods, is difficult, since in the trading of such goods a whole range of very different persons may be involved. The goods may have been sold by the first user who may have been able to deduct value-added tax, or bv a private person who has not been able to deduct it if he is not a taxable person or if there is some special provision prohibiting such deduction even bv taxable persons (cf. Article 13 (B) (c) of the directive). The goods may be sold to a mere private person or to a taxable person, being an occasional or fulltime dealer, who in turn resells the goods, possibly after reconditioning them.

When the use of the goods continues not in the country of origin (France) but in another Member State (the Netherlands) as a result of imponation into that State, ihe importation amounts, from the tax point of view, to bringing the goods back into circulation. It is as if from the time they crossed the tax frontier the goods were brought back into circulation. The private person, Mr Van Zanten, becomes a taxable person within the meaning of Article 4 of the directive simply because the secondhand goods which he has acquired crossed a frontier.

(2)

The problem of the absence of taxation, or on the contrary, that of double taxation in relation to value-added tax within the Community, had already been raised when the First Council Directive was in the course of preparation.

A Community system for alleviating taxation on importers' turnover tax and excise duty was established by a Council Directive of 28 May 1969 in connection with international travel.

Another Council Directive of 19 December 1974 allows tax reliefs on the importation of goods in small consignments of a noncommercial character within the Community.

The Sixth Directive itself provides that where movable tangible property (including motor vehicles) has undergone in another Member State work or repair which has been taxed without the right to deduction it may be re-imported free from further tax into the Member state from which it has been temporarily exported (Article 14 (1) (f))-

However, as regards “secondhand goods” none of the suggested solutions has been adopted and Article 32 of the Sixth Directive is confined to stating:

“The Council, acting unanimously on a proposal from the Commission, shall adopt before 31 December 1977 a Community taxation system to be applied to used goods, works of art, antiques and collectors' items.

Until this Community system becomes applicable, Member States applying a special system to these items at the time this directive comes into force may retain that system.”

On 11 January 1978 the Commission submitted to the Council a proposal for a seventh directive on a “common system of value-added tax to be applied to works of art, collectors' items, antiques and used goods”. On 16 May 1979 it made certain amendments to that proposal. The proposal relates in particular to pleasure boats (Article 4 (1)), but the Council has not yet issued a directive. In any event, for the purpose of eliminating any tax residue, the proposal is intended to allow only taxable persons to deduct the value-added tax contained in the sale price of the secondhand goods sold to them by a private person. It does not cover the passing of such goods from one private person to another.

The fact that the time-limit of 31 December 1977 fixed by the Council has passed in no way allows private persons to rely on any kind of “effectiveness” of the provision.

(3)

The free movement of secondhand goods is. it is true, affected by this double taxation. “Whereas, in order that the people of the Member States should be made more aware of the existence of the European Community, further measures to benefit the individual should be taken in order to create similar conditions in the Community to those in a domestic market” (first recital in the preamble to the proposal for a directive on tax exemption applicable to personal property of individuals on permanent importation from another Member State submitted by the Commission to the Council on 30 October 1975). Nevertheless, contrary to what counsel for the company Gaston Schul suggests, that situation results not from oversight but is intended.

There is in that kind of taxation a choice of economic policy corresponding in my opinion to the present state of Community law.

It must first of all be observed that such taxation on importation does not specifically benefit secondhand goods sold in the Netherlands. It works in the same way to the advantage of secondhand goods sold in all the Member States and to the detriment of secondhand goods bought in other Member States. In that respect all private persons of all the Member States who impon secondhand goods are on an equal footing with regard to public charges. The case-law of the Court does not consider all inequality of treatment as arbitrary discrimination but only differences which cannot be objectively justified.

Some degree, at least, of taxation of the boat imported into the Netherlands in any event remains justified by the principle of taxation in the country where the use of the boat continues. There might be reason to fear circumvention of the normal commercial channels if it were possible, without paying value-added tax, to import into a Member State secondhand goods (a motor vehicle for example) bought from a private person in another Member State and not charged with value-added tax on that occasion whereas the expon of the same goods purchased from a taxable person would not create a right to deduction.

To obtain goods at the lowest rate of value-added tax it would be sufficient for a person to buy them secondhand in the Member State where that rate is in force and then impon them into his own country. As is known the rates of value-added tax are still not unified.

Moreover, the turnover tax of 18% levied in the Netherlands is not calculated on the purchase price of the boat new but on the invoice price charged by Mr Nanni to Mr Van Zanten. That price in principle ought to take account of the depreciation of the goods and the fact that the residuary tax burden contained in the sum paid by Mr Van Zanten was not deductible by him. If the sale price paid by Mr Van Zanten was correctly calculated by Mr Nanni the taxation on imponation is not more than the pan of the value-added tax passed on in the Netherlands by a private person who sells a secondhand boat to another private person.

(4)

Mr Van Zanten and the company Gaston Schul appear to maintain, in shon, that in the absence of complete exemption from turnover tax on imponation into the Netherlands an abatement should have been allowed at least to the extent of the indirect residue of turnover tax and that the boat could benefit, upon being exported from France, from a repayment of the tax charged on it there.

To share that point of view it would be necessary that instead of applying the system of “tax less tax” deduction provided for by the directive (the tax is based on the difference between the tax on sale and the tax on purchase) there would have to be applied the system of “price less price” deduction according to which the tax would be charged on the difference between the purchase price and the selling price. The supplier's invoice would thus serve as proof for the purposes of deduction at the following stage. However that invoice does not show the part of value-added tax contained in the price paid by the buyer. Further such a system of repayment would assume taxation on delivery of the boat by Mr Nanni to Mr Van Zanten: any grant of exemption necessarily presupposes proof of previous taxation.

Let me observe that private persons who confine themselves to trading in secondhand goods within one and the same Member State would not be in favour of such taxation which in addition, in the present state of Community law, is impossible, for the directive requires (Article 13 (B) (c)) Member States to exempt the supply of goods where value-added tax was paid on their acquisition and did not become deductible (Article 17 (6)).

To grant even a partial repayment of value-added tax on the exponation from France, where the boat was also used, it would have been necessary, on the occasion of the sale by Mr Nanni, to determine on the one hand the “residue” of tax incorporated in the price paid by Mr Nanni and on the other hand to levy and recover the turnover tax corresponding to the subsequent use of the boat by Mr Van Zanten in the Netherlands.

Both the States and the institutions which have submitted written or oral observations in the present proceedings have stressed the administrative complications which this would entail and which would in certain cases be out of proportion to the interests involved. Private persons who engage in such transactions would have to become accountants and collectors of taxes.

Apart from such exacting administrative problems there is a much more serious difficulty. It has to do with the manner in which the product of the value-added tax levied on the use of secondhand goods is distributed between the Member States. The way in which this is done depends on whether such use is confined to the State of origin of the goods or. as in the present case, continues in another Member State and the procedures of taxation in the State of origin do not fall within the jurisdiction of the State of importation and conversely. The first recital of the preamble to the Commission's proposal on the Community system of taxation applicable, in relation to used goods puts the problem in clear terms: this s\strm “should avoid deflection of trade within the Community, and ensure that the application of the Community rate to such transactions produces equitable results in all Member States, for the purposes of the Community's own resources”.

(5)

I would join with the Italian Government in adding that as regards any effect of double taxation in the case of exportation to another Member State it was held bv the Court in its judgment of 29 June 1978 in Case 142/77 Larsen ([1978] ECR 1543):

“... the EEC Treaty contains no provisions prohibiting effects of double taxation of this type.

Although the abolition of such effects is doubtless desirable in the interests of the freedom of movement of goods, it can however only result from the harmonization of the national systems under Article 99 or possibly Article 100 of the Treaty.” (Paragraphs 33 and 34 the decision).

To eliminate the difference in treatment of which Mr Van Zanten and the company Gaston Schul complain it would be necessary:

It cannot be maintained that the Sixth Directive is unlawful because it has not provided for all these procedures. It is not possible to make up for the absence of a special Community system for secondhand goods merely by declaring that Article 2, point 2, of the directive is invalid, when there are various procedures which could supply this omission. The only way possible is recource to Article 99 of the Treaty.

In answer to the questions raised I propose that the Court should hold: