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- Referral date: 05-10-2001
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- Opinion date: 10-10-2002
- Ruling date: 08-05-2003
- AG: Alber
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OPINION OF ADVOCATE GENERAL
ALBER
delivered on 10 October 2002 (1)
Case C-384/01
Commission of the European Communities
v
French Republic
I ─ Introduction 1. In 1998, the French Republic amended its domestic law relating to value added tax on supplies of electricity and natural gas. It applied a reduced rate of value added tax to the standing charge, that is the fixed price payable in respect of a defined period of time for connection to the relevant distribution networks and other fixed costs. The standard rate remained applicable to the rest of the consideration, which was calculated by reference to consumption. In the present infringement procedure, the Commission alleges in the first place that the French Republic did not inform it properly or completely of the amendment in advance, whereas the Sixth VAT Directive required it to do so. (2) In the second place, it is of the view that applying different rates of value added tax to the two parts of the supply is not compatible with the Directive. II ─ Legal framework 2. Article 12(3)(a) of the Sixth Directive (3) provides: The standard rate of value added tax shall be fixed by each Member State as a percentage of the taxable amount and shall be the same for the supply of goods and for the supply of services. ...Member States may also apply either one or two reduced rates. These rates shall be fixed as a percentage of the taxable amount which may not be less than 5% and shall apply only to supplies of the categories of goods and services specified in Annex H. 3. Article 12(3)(b) of the Sixth Directive (4) then provides:Member States may apply a reduced rate to supplies of natural gas and electricity provided that no risk of distortion of competition exists. A Member State intending to apply such a rate must, before doing so, inform the Commission. The Commission shall give a decision on the existence of a risk of distortion of competition. If the Commission has not taken that decision within three months of the receipt of the information a risk of distortion of competition is deemed not to exist. 4. Article 29 of the French Loi de finance (Finance Act) 98-1266 for 1999 (5) provides inter alia that a reduced rate of value added tax of 5.5% shall be applied to the standing charge for electricity and natural gas supplied by the public networks. By contrast, the other part of the consideration, which is calculated by reference to consumption, is subject to the standard rate as laid down by Article 278 of the Code général des impôts (General tax code), namely 19.6%. III ─ Facts and procedure 5. By letter dated 8 July 1998, the French Minister for the Economy, Finance and Industry notified the Commission that, pursuant to Article 12(3)(a) of the Sixth Directive, he intended to apply a reduced rate of tax to the standard charge for connection to the gas and electricity supply network ( l'abonnement aux réseaux de distribution de gaz et d'électricité ) in order to encourage demand and to increase the purchasing power of socially disadvantaged customers in particular. 6. The Commission understood this to be a notification under Article 12(3)(b) of the Sixth Directive and by letter dated 31 July 1998 requested the French authorities to provide more information about the conditions for the application of the measure. 7. By letter dated 7 September 1998, the Ministry replied that the standing charge was part of the consideration for the supply of gas and electricity. Since the reduction applied to all distributors in the same way, there was no risk of distortion of competition. 8. By a further letter dated 7 December 1998 the Commission expressed doubts as to France's argument, on the ground that the standing charge did not actually pay for any energy consumption, and required the French authorities to explain this point in more detail, which however they did not do. 9. The French Parliament enacted the relevant law on 30 December 1998. It was promulgated on 31 December 1998 and entered into force on 2 January 1999. (6) 10. On 22 October 1999 the Commission sent France a letter of formal notice pursuant to Article 226 EC. Not having received any reply thereto, on 13 June 2000 it sent a reasoned opinion to the French Republic. Since the French authorities' response of 7 August 2000 did not persuade the Commission, on 5 October 2001 it brought an action under Article 226 EC. 11. The Commission claims that the Court should: ─declare that, by applying a reduced rate of VAT to the fixed part of the prices for gas and electricity supplied by the public networks, the French Republic has failed to fulfil its obligations under Article 12(3)(a) and (b) 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; ─order the French Republic to pay the costs. 12. The French Republic contends that the Court should: ─dismiss the action; ─order the Commission to pay the costs. 13. There was no oral hearing. IV ─ Submissions of the parties A ─ The Commission 14. As appears from the reasons given in the application, the Commission alleges that the French Republic has infringed the Sixth Directive in two different ways. In the first place, it is of the view that France did not properly follow the notification procedure under Article 12(3)(b) of the Sixth Directive before introducing the reduced rate. In the second place, the Commission is of the view that the structure of the value added tax provisions is in substance incompatible with Article 12(3)(a) and (b) of the Sixth Directive. 15. In the Commission's opinion, its second request for information, dated 7 December 1998, interrupted for a second time the period laid down by the fourth sentence of Article 12(3)(b) of the Sixth Directive prior to its expiry. For that reason, France had not been entitled to assume that the Commission had tacitly approved the measure, and accordingly had not been entitled to implement it. 16. The second request for information had not been mala fide and had not been intended merely to delay the procedure. Rather, the Commission required further information in order to be able to assess the measure's effect on competition within the Community and to issue a reasoned decision which complied with the requirements of Article 253 EC. 17. The Commission founded its substantive complaint on alternative grounds. 18. If the standing charge were consideration for a service other than the supply of energy, Article 12(3)(b) of the Sixth Directive, which authorised a reduced rate of tax for the supply of energy, was not applicable. Nor did the present case come within any of the other categories to which Article 12(3)(a) of, in conjunction with Annex H to, the Sixth Directive authorised a reduced rate to be applied. 19. On the other hand, if the standing charge were to be regarded as part of the consideration for the supply of energy, the measure infringed the principle in Article 12(3)(a) of the Sixth Directive that a single rate of tax was to be applied to similar supplies. This principle was ultimately an aspect of the principle of fiscal neutrality. 20. The provisions resulted in different treatment for different categories of consumers. If a consumer chose a tariff with a higher standing charge but a lower charge for consumption, his effective tax rate would be lower than that under a tariff with a low standing charge but a high consumption charge. B ─ The French Government 21. The French Government submitted that its response to the Commission's first letter had given the Commission all the information it needed. No further information had been required to enable the Commission to construct its two alternative arguments for the proposition that the directive had been infringed. The proposition that the information had been sufficient to enable the Commission to commence an infringement procedure but not to enable it to make a decision under Article 12(3)(b) of the Sixth Directive was incomprehensible. 22. The French Government's failure to reply to the Commission's second (and in its view superfluous) request for information (dated 7 December 1998) did not infringe Article 12(3)(b) of the Sixth Directive. This request had not interrupted the period within which the Commission was entitled to object to the implementation of the reduced rate of tax. (7) It followed that the period had expired on 7 December 1998, three months after the receipt of the French Government's letter, and that the measure was therefore to be regarded as having been tacitly approved. 23. Purely in the alternative, the French Government rejected the complaint of a substantive infringement of the directive. It had always emphasised that the standing charge was consideration for the supply of natural gas and electricity and not for some other service. 24. Nor had it infringed the principle of a single tax rate for similar supplies. The supply of energy by public networks comprised various different supplies, and it was lawful to apply different rates of tax to each of them. First, a connection was made available to the customer who was thereby enabled to obtain gas or electricity, as the case might be. Secondly, a particular amount of energy was supplied and was charged for by reference to consumption. 25. The French Government submitted that the complaint of discrimination between different categories of consumers was inadmissible, since it did not appear in the reasoned opinion. Gaz de France (hereinafter GdF) and Électricité de France (hereinafter EdF) imposed a different standing charge according to consumption and voltage respectively and according to customer category (private customers, business customers, small industrial customers and industrial customers) as well as within customer categories depending on what tariff the customer chose. Therefore, the example the Commission portrayed could not prove there to have been discrimination. V ─ Analysis A ─ Infringement of the notification obligation 26. Article 12(3)(b) of the Sixth Directive authorises Member States to apply a reduced rate of value added tax to supplies of natural gas and electricity provided that no risk of distortion of competition exists. 27. Before applying any reduction, the Member State must inform the Commission. The Commission either gives an express decision or allows a period of three months to pass without giving a decision. In the latter case, a risk of distortion of competition is deemed not to exist. 28. Article 12(3)(b) of the Sixth Directive does not contain any more procedural rules. By contrast with the corresponding provision in relation to State aids, contained in the third sentence of Article 88(3) EC, the provision does not expressly prohibit applying the reduced rate prior to the Commission's decision or the expiry of the three month period. 29. However, an interpretation of the provision based on the principle of effet utile (the principle of effectiveness) would prohibit such application. If the Member State were permitted to apply the reduced rate of tax before the Commission gave its decision, by the time the Commission thereafter established that there was a risk of distortion of competition such distortion would already have occurred. Moreover, if the Commission objected, the national legislature would be required immediately to repeal the provision it had just enacted. Such amendments at short notice would cause unnecessary expense for both taxpayers and tax authorities, and would create significant legal uncertainty. 30. This interpretation is also supported by the fact that if the Commission fails to give its decision within three months of being notified, the measure is then deemed to be compatible with competition law. This fiction, or tacit approval by the Commission, ensures that the Commission cannot keep the Member State in a state of uncertainty as to its decision for too long a period. It is reasonable to expect the Member State to wait three months to apply the reduced rate, and in normal circumstances the assessment procedure cannot last any longer than that. 31. This is also supported by the fact that amendment of the value added tax rate for energy supplies is a political decision of broad-ranging effect owing to the large number of taxpayers it affects and its significant effects on the national budget. 32. It follows that it became lawful for the French Republic to apply the reduced rate of value added tax to supplies of natural gas and electricity pursuant to Article 12(3)(b) of the Sixth Directive only after either the Commission had established that doing so would not create a risk of distortion of competition, or the three month period following notification to the Commission had expired without the Commission's having given a decision. Since the Commission did not issue any decision, the amendment of the value added tax rate may be held to have been implemented without procedural irregularity only if the present case falls into the second category. 33. Therefore, it has to be established when the three-month period began and when it ended. 34. The Commission appears to have assumed that the period was commenced by the first notification but was interrupted and recommenced by its letters of 31 July and 7 December 1998 requesting information. Accordingly, the period had not expired when the Loi de finance entered into force. 35. The Sixth Directive does not contain any detailed provisions as to what information the Member State must supply in its notification and how the running of the assessment period is affected where the information is incomplete and the Commission is consequently required to obtain further information. It follows that guidelines need to be developed for the notification procedure under Article 12(3)(b), in the light of its wording and purpose. 36. These guidelines must take into account the principle that the Member States and the Community organs owe each other mutual duties of genuine cooperation, as is evinced in Article 10 EC. (8) A parallel may be drawn with the procedure for notifying State aids. The respective interests of the Member State and of the Commission in the two procedures are similar. As regards the notification required by State aid law, the courts, and subsequently the legislature, have specified the consequences that giving incomplete information has on the running of the assessment period. 37. Thus, even before Council Regulation (EC) No 659/1999 of 22 March 1999 laying down detailed rules for the application of Article 93 of the EC Treaty (9) (now Article 88 EC) (hereinafter Regulation No 659/1999) entered into force, it had already been recognised that the period established in Lorenz (10) for the commencement of formal proceedings was commenced only by a complete notification. (11) This condition was enacted in the second sentence of Article 4(5) of Regulation No 659/1999. 38. In addition, the third sentence of Article 4(5) of Regulation No 659/1999 provides that the notification will be considered as complete if, within two months from its receipt, the Commission does not request any further information. 39. Though developed in the context of State aid law, these principles may be transposed to the notification required by Article 12(3)(b) of the Sixth Directive. The three month period begins only once the Commission actually has all the information necessary to enable it to decide whether the intended introduction of a reduced rate of tax will create a risk of distortion of competition. 40. As Advocate General Jacobs rightly explained in his Opinion in Austria v Commission in the context of State aid law, by sending the Member State concerned a request for information the Commission implies that a notification is incomplete. (12) If the notification is truly incomplete (and this is a matter for the Court to determine), (13) then the period has not started to run and accordingly it is not broken by the request for information. Correspondingly, if the Commission does not request further information within the three month period, the notification under Article 12(3)(b) of the Sixth Directive is to be regarded as complete. 41. Therefore, the question as to whether the notification was complete, or could be held to be complete, with the consequence that the period began to run must be examined. 42. The French Government's first notification (dated 8 July 1998) did not constitute a complete notification. Only at the end of this letter, which primarily concerned other questions of value added tax law, did the French Government state briefly that it was going to apply a reduced rate of value added tax to the standing charge for gas and electricity supplies. This was intended to encourage demand and increase the purchasing power of domestic customers. 43. Moreover, the notification referred to Article 12(3)(a) of the Sixth Directive and not to Article 12(3)(b), which was the relevant provision. This error was clearly apt to cause misunderstandings. The Commission could have thought that the standing charge was to be regarded as consideration not for the supply of energy but for a supply falling within Article 12(3)(a) in conjunction with Annex H to the Sixth Directive. 44. The fact that on 31 July 1998 the Commission requested further information likewise means that the notification cannot be regarded as being complete. 45. On 7 September 1998 the French Government supplemented the information it had supplied. Thereafter, on 7 December 1998 the Commission sent another letter to the French Republic. The question is whether this letter is to be regarded as a request for further information. 46. On the one hand, the Commission states that the letter interrupted the period again. In other words, the Commission itself regards its letter as being in effect a request for information. On the other hand, however, the Commission did not ask any specific questions and did not ask for particular pieces of information, but simply expressed doubts that the standing charge could be regarded as consideration for the supply of energy, since it was not in itself related to any actual energy consumption. It also expressed its view that Article 12(3)(a) of the Sixth Directive would have to be taken into consideration. 47. It may be concluded from the judgment of the Court in Austria v Commission that a letter in which the Commission does not ask for specific explanations of an intention to grant aid cannot postpone the commencement of the period. (14) 48. In examining the letter it must also be remembered that the notification is required to contain principally factual information on the intended national measure and information on the conditions in the market for the supplies to which the reduced tax rate is to be applied. On the other hand, the Member State is not obliged to suggest how the measure should be classified in law, since it is for the Commission to assess the legal effect of the facts. 49. Therefore, the letter of 7 December 1998 is not to be regarded as a request for further information, since the Commission did not ask for information about the intended national measure or the facts of the case. Instead, the Commission asked the French Government to express its view as to classifying the standing charge in law as part of the consideration for the supply of energy. Nor was the reference to Article 12(3)(a) of the Sixth Directive aimed at eliciting further information: it merely reflected the Commission's legal analysis, and that in only the vaguest way. 50. It is certainly doubtful that the French Government had in fact already provided the Commission with all the information it needed in order to be able to assess the measure. Thus, for example, there was no information about the situation on the markets concerned. Nor was there any detailed information on the tariffs applicable in France for the provision of gas and electricity, for example as to what proportion of the aggregate price for the supply of energy consisted in the standing charge and what in the charge calculated by reference to consumption. 51. The French Government's argument that the information had to be regarded as sufficient for the purposes of the Sixth Directive since it was sufficient to enable the Commission to commence an infringement procedure is doubtful. The two procedures serve different purposes. Moreover, it may be that it is easier for the Commission to discharge its burden of proof in the infringement procedure where the Member State has not cooperated in establishing the facts. 52. Ultimately, the issue is not whether the information the French Government provided to the Commission was in fact sufficient to enable the assessment required by Article 12(3)(b) of the Sixth Directive. For the Commission did not ask the French Government any specific questions indicating that it required further information on the facts and therefore regarded the notification as being incomplete. The principle of genuine cooperation would have required the Commission to do this. 53. In itself, the fact that the Commission asserted in its letter that the letter interrupted the period cannot alter this assessment. The rule that after three months the measure is deemed not to distort competition would be completely undermined if the Commission were thus able to influence when the assessment period started. That would defeat the purpose of this provision, namely to ensure that the Member States are not in a state of uncertainty as to the assessment of the intended measure for too long. 54. It follows that the French Government's notification must be regarded as being complete once it sent its letter of 7 September 1998 supplementing the information it had already supplied. Three months after that letter had been received by the Commission, it was deemed that no risk of distortion of competition existed. 55. Thereafter, the French Government was entitled to apply the reduced tax rate to the supply of energy. It did not infringe the notification obligation laid down by Article 12(3)(b) of the Sixth Directive. B ─ Infringement of the substantive requirements of Article 12(3)(a) and (b) of the Sixth Directive 1. Dismissibility of alternative grounds 56. The Commission bases its substantive complaint on alternative grounds. The first ground is that Article 12(3)(a) of in conjunction with Annex H to the Sixth Directive (or indeed with any other of the Directive's provisions) does not authorise the application of a reduced rate of tax to the standing charge for the provision of natural gas and electricity which is to be distinguished from the charge for the actual supply of energy. 57. The second ground is that the principle of a single tax rate has been infringed. Even though the Commission derives this principle likewise from Article 12(3)(a) of the Sixth Directive, the second complaint is none the less of a completely different infringement. 58. The Commission submits that which of the two alternatives is actually the relevant one depends on the prior question as to whether the standing charge is to be classified as part of the consideration for the supply of energy or as consideration for a separate supply. In the preliminary proceedings the French Government gave reasons for its view that the standing charge was to be classified as part of the consideration for the supply of energy, but in its application the Commission did not address those reasons and continued to insist on both alternatives. It was only in its response that the Commission eventually took the view that providing the network was a separate supply and not part of the supply of energy. 59. The question is whether a complaint of a failure to fulfil obligations in this form is sufficiently precise and does not infringe the French Republic's defence rights. Although the French Government did not raise any objection on this basis, it would be open to the Court to consider the question of its own motion, given that it is one of admissibility. 60. The Commission did not give express primacy to either of the two alternatives. However, reading its submissions as a whole, it appears that its principal proposition is that providing the network is not to be regarded as the supply of gas and electricity. It follows that the question whether there is an infringement of the principle of a single tax rate arises only if the Court decides that providing the energy supply network is not to be regarded as a separate supply but as part of the supply of energy. Thus, the second alternative may be regarded as subsidiary. 61. It is permissible to put forward a principal and a subsidiary basis for the proposition that there has been a failure to fulfil obligations. On that basis, the Commission's complaint is sufficiently clear. It follows that the French Government's defence rights have not been curtailed. 2. Admissibility of the substantive complaints 62. Under Article 12(3)(b) of the Sixth Directive no risk of distortion of competition is deemed to exist, given that the three-month period has expired without the Commission's having expressed its opinion as to whether there is a risk of distortion of competition. The French Government submits that because the three-month period has expired and the Commission is therefore deemed to have given the measure its tacit approval, the Commission is precluded from objecting to the measure by an infringement procedure. 63. This view cannot be accepted. However, in rejecting it, it is unnecessary to decide whether the expiry of the period gives rise to a legal fiction or, as the French Government submits, the Commission's silence is deemed to constitute tacit approval. 64. The fiction or the tacit approval (as the case may be) relates only to the risk of distortion of competition. It does not encompass the other requirements of Article 12(3)(b), or indeed of any of the other provisions of the Sixth Directive. Thus, for example, even though the Commission has not given its final decision three months after the notification, the supply to which a reduced rate of tax is to be applied cannot be deemed to be a supply of natural gas and electricity. Therefore, the Commission's principal complaint, namely that the French Government was wrong to classify the supply as the supply of energy, and that therefore Article 12(3)(b) of the Sixth Directive could not provide the basis for applying a reduced rate of tax, is in any case admissible. 65. In the present proceedings, the Commission is also entitled to rely on its subsidiary complaint, namely an infringement of the principle of a single tax rate. Admittedly, there is a certain link between the possible infringement of this principle and the measure's effect on competition, as will be explained below. (15) However, in this connection the Commission's main point is that Article 12(3)(a) of the Sixth Directive has been infringed. That being so, the extent to which the Commission is bound by its assessment of the risk of distortion of competition is to be taken into account in considering the substantive issue, since that assessment is the basis for the Commission's tacit approval or, as the case may be, the legal fiction that the measure is compatible with competition law. 66. Finally, account must be taken of the fact that in its letters of 31 July and 7 December 1998 the Commission expressed its doubts as to classifying the standing charge in law as consideration for the supply of natural gas and electricity. In addition, in its letter of 7 December 1998 it expressed doubt as regards Article 12(3)(a) of the Sixth Directive. Even if the Commission thus failed to express its view as to distortion of competition within the time-limit, raising the present complaints in the infringement procedure does not amount to inconsistency on its part. 3. The principal complaint: classifying the provision of an energy supply network as a specific supply 67. The Commission's principal complaint can succeed only if the standing charge is to be classified as part of the consideration not for the supply of natural gas and electricity but for a specific supply. The third subparagraph of Article 12(3)(a) of the Sixth Directive provides that a reduced rate may apply only to supplies of the categories of goods and services specified in Annex H. Since neither the connection to the energy supply network nor the provision of the corresponding distribution network falls within any of the categories in Annex H, it would not be lawful to apply the reduced rate in the present case. 68. It is first to be observed that in its application to the Court the Commission did not provide any further reasons for its proposition that the connection was a specific supply, even though the French Government had expressly rejected this view in its letter of 7 September 1998. 69. Only in its reply did the Commission state that the term supply in Article 12(3)(b) of the Sixth Directive could not include the connection. Instead, the facility which the connection created to obtain energy supplies was a separate supply, preliminary to the supply of energy. 70. If it were to be held that the Commission's complaint is wrong in substance, it would be unnecessary to decide whether this rather superficial reason, which was not given until the reply, was sufficient to fulfil the Commission's disclosure obligation in an infringement procedure. 71. The connection may be regarded as a specific supply only if it is a supply which is necessarily to be separated from the actual supply of natural gas and electricity. In this regard, two factors are to be taken into account. First, if it were possible to obtain a connection other than as part of a package including the supply of natural gas or electricity in the narrow sense, this would support the proposition that the supplies were separate. For such a possibility to exist, it would have to be possible to obtain natural gas and electricity from a different supplier. In that case, the connection would be nothing more than the use of the distribution network. Second, the price for the connection would have to be related to certain fixed costs, for example the costs of operating the network. 72. The legal framework of the markets concerned is important in deciding whether the connection and the operation of the network are to be separated from the supply of specific amounts of energy. 73. Relevant to the electricity sector is Directive 96/92/EC of the European Parliament and of the Council of 19 December 1996 concerning common rules for the internal market in electricity, (16) which was required to be transposed not later than 19 February 1999. Article 19 of this directive provides for a progressive opening of the market, although initially only large consumers are to be permitted to choose their supplier. 74. According to the Commission's First benchmarking report on the implementation of the internal electricity and gas market of 3 December 2001, (17) at that time, long after the expiry of the period commenced by the reasoned opinion, (18) only 30% of the French market had been opened: only final consumers consuming more than 16 GWh per year could choose their supplier. (19) At the relevant time, domestic customers (the principal category of persons affected by the provision concerning the tax on the standing charge) could obtain electricity only from the existing monopoly supplier, EdF, who also provided their connection. 75. Provisions for opening the gas supply market are contained in Directive 98/30/EC of the European Parliament and of the Council of 22 June 1998 concerning common rules for the internal market in natural gas. (20) This Directive was required to be transposed into national law not later than 10 August 2000, but France did not transpose it within that time-limit. (21) Moreover, in this sector too, initially only large consumers are given the right to choose their supplier. (22) 76. It appears therefore that, at the relevant time, private customers and also many business customers could obtain electricity and gas only from EdF and GdF respectively, who also provided the connection. This suggests that the connection is not to be classified as a separate supply. 77. The second factor also suggests that the supply is indivisible. It is not apparent that the standing charge is in fact directly related to specific fixed costs. Admittedly, the connection tariffs vary depending on the amount of gas consumed or the voltage, as the case may be, as well as on the customer category, so that one could take the view that there is a link between how much the infrastructure is used and the amount of the standing charge. However, in its letter of 7 September 1998 to the Commission, the French Government stated that the revenue from the standing charge was only about 27% of the total costs of the distribution undertaking, whereas the fixed costs (23) were in fact over half those costs. In other words, part of the fixed costs was covered by the revenue from the charges calculated by reference to consumption. 78. In the present case, dividing the consideration for the supply of natural gas and electricity into a fixed and a variable part constitutes the exercise of the distribution undertakings' freedom to fix prices for an integrated supply. (24) It is not the case that the two charges are for two separate supplies. 79. Council Directive 90/377/EEC of 29 June 1990 concerning a Community procedure to improve the transparency of gas and electricity prices charged to industrial end-users also supports this view. (25) Annex I, point 9 (concerning gas) and Annex II, point 8 (concerning electricity) provide that a unitary price is to be calculated taking into account the fixed charge and the charge calculated by reference to consumption. 80. It follows that the proposition that the connection does not constitute the supply of natural gas and electricity within the meaning of Article 12(3)(b) of the Sixth Directive is not correct, and accordingly that the introduction of a reduced rate of value added tax pursuant to that provision cannot be precluded on that ground. Therefore, the Commission's principal complaint is to be rejected. 81. However, this decision applies only as of the point in time relevant for the purposes of the present infringement procedure, namely the expiry of the period set in motion by the reasoned opinion. It is possible that the situation has since changed as the market has been progressively opened. 4. The subsidiary complaint: infringement of the principle of a single tax rate 82. In case the connection were to be regarded as the supply of natural gas and electricity, the Commission alleges an infringement of the principle that similar supplies are to be subject to the same rate of value added tax. 83. It deduces this principle from Article 12(3)(a) of the Sixth Directive, which provides that, [t]he standard rate of value added tax shall be fixed by each Member State as a percentage of the taxable amount and shall be the same for the supply of goods and for the supply of services .... The Commission submits that this inherent principle of value added tax is intended to prohibit any discrimination between persons who obtain the same goods or services. 84. However, this principle is not apparent from the provision's wording. What the provision in fact states is simply that the standard rate is to be the same for services and goods. It does not appear from this provision that the same rate of tax is to be applied to similar services and similar goods. 85. None the less, the principle the Commission relies on is an aspect of the principle of fiscal neutrality, which is recognised as a fundamental principle of the Community system of value added tax. Thus, in its judgment in Commission v France the Court stated: It follows that the introduction and maintenance of a rate of 2.1% for reimbursable medicinal products, whereas the supply of non-reimbursable medicinal products is subject to a rate of 5.5%, are permissible only in so far as they are consistent with the principle of fiscal neutrality inherent in the common system of VAT and in compliance with which the Member States are required to transpose the Sixth Directive ...That principle in particular precludes treating similar goods, which are thus in competition with each other, differently for VAT purposes ... The principle of fiscal neutrality for that reason also includes the other two principles ... of VAT uniformity and of elimination of distortion in competition. (26) 86. The question is whether the Commission's complaint is to be rejected on the ground that it invokes Article 12(3)(a) of the Sixth Directive and not the general principle of fiscal neutrality. 87. Against such rejection is first the fact that the principle on which the Commission expressly relies, namely the principle of a single rate of tax, is ultimately an aspect of the principle of fiscal neutrality. Second, the Commission's description in its letter of formal notice of the substance of the principle concerned was sufficiently clear for the French Government to be able to provide any justification for the infringement the Commission was actually complaining about. It follows that the Commission's wrong reference to Article 12(3)(a) of the Sixth Directive as being the basis of the principle of a single tax rate does not require the complaint to be dismissed. 88. The principle of fiscal neutrality would be infringed if the consequence of the French tax provisions were that similar supplies which were in competition with each other were treated differently for value added tax purposes. 89. As explained above, for the vast majority of final consumers, the connection and the supply of natural gas or electricity, as the case may be, are not distinct supplies but an integrated supply consisting partly in services and partly in goods. (27) The only thing divided into two parts is the price for the supply, those parts being the standing charge and the charge calculated by reference to consumption. 90. The consequence of applying different rates of value added tax to the two parts of the consideration is that the supply as a whole is in fact subject to a rate of value added tax which depends on the average of the rates of value added tax weighted according to the different parts of the price. The supply of natural gas and electricity is thus subject to many different rates of tax whose amount depends on what proportion of the aggregate price consists in the standing charge and what in the charge calculated by reference to consumption. 91. This constitutes an infringement of Article 12(3)(a) of the Sixth Directive since that provision authorises the application of at most two reduced rates in addition to the standard rate. However, since the Commission has not founded its complaint on this infringement, it cannot be relied on in the present proceedings. 92. However, this tax provision could at the same time infringe the principle of fiscal neutrality, in that different rates of tax are applied to similar supplies. 93. The French Government's observation that the standing charge varies according to what is supplied and to the customer category does not change this analysis. Admittedly, it might for example be that there is a difference between low and average voltage supplies of electricity constituting different supplies. However, there would still be different effective rates of value added tax within the same voltage band depending on how much electricity has actually been used and consequently what proportion of the consideration is subject to the standard rate of value added tax. 94. However, as the Court has said, the principle of fiscal neutrality is intended also to preclude treating similar goods, which are thus in competition with each other, differently for VAT purposes. (28) To be precise, the point is to prevent distortion of competition between the suppliers of the goods concerned. 95. It may be that at the point in time relevant for the present decision EdF and GdF offered a number of different tariff structures in France. It may be that the tax provisions accordingly had different effects for different categories of customer. However, the Commission made no submission as to the extent to which there was any competition on the French markets for the supply of natural gas and electricity or as to the extent to which the tax provisions thus created a risk of distortion of competition between the different market participants. 96. The Commission has thus failed to prove one of the necessary conditions of an infringement of the principle of fiscal neutrality. Therefore, this complaint too is unfounded. VI ─ Costs 97. The decision as regards costs depends on Article 69 of the Rules of Procedure, paragraph 2 of which provides that the unsuccessful party is to be ordered to pay the costs if they have been applied for. Since the French Republic made such an application, and the action has been unsuccessful, the Commission is to be ordered to pay the costs. VII ─ Conclusion 98. On the basis of the foregoing considerations, it is submitted that the Court should: (1) dismiss the action; (2) order the Commission to pay the costs.
1 – Original language: German.
2 – 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 (OJ 1977 L 145, p. 1) (hereinafter the Sixth Directive).
3 – As amended by Council Directive 96/95/EC of 20 December 1996 amending, with regard to the level of the standard rate of value added tax, Directive 77/388/EEC on the common system of value added tax (OJ 1996 L 338, p. 89).
4 – As amended by Council Directive 92/77/EEC of 19 October 1992 supplementing the common system of value added tax and amending Directive 77/388/EEC (approximation of VAT rates) (OJ 1997 L 316, p. 1).
5 – . Journal officiel de la République française of 31 July 1998, p. 20050.
6 – See Article 2 of the Decree of 5 November 1870 relating to the promulgation of laws and decrees.
7 – On this point, the French Government referred to Case C-99/98 Austria v Commission [2001] ECR I-1101.
8 – The Court has consistently emphasised the importance of this principle in its case-law concerning Member States' difficulties in implementing Commission decisions on State aids. See Case 94/87 Commission v Germany [1989] ECR 175, paragraph 9, Case C-378/98 Commission v Belgium [2001] ECR I-5107, paragraph 31, and Case C-499/99 Commission v Spain [2002] ECR I-6031, paragraph 24.
9 – OJ 1999 L 83, p. 1.
10 – Case 120/73 [1973] ECR 1471.
11 – . Austria v Commission (cited above, footnote 7), paragraph 56. See also the Opinion of Advocate General Jacobs in that case, points 70 to 81.
12 – Cited above, footnote 11, point 98.
13 – For example, in Austria v Commission (cited above, footnote 7), paragraphs 60 ff., the Court considered when the Member State had provided the necessary information and when the period for commencing the formal procedure therefore began to run.
14 – Cited above, footnote 7, paragraph 65. However, the Court also held in this judgment that the Commission already had all the necessary information, whereas this is doubtful in the present case (see below, paragraph 50).
15 – See below, points 94 f.
16 – OJ 1997 L 27, p. 20.
17 – Commission Staff Working Paper SEC(2001)1957, available on the Commission's home page, Energy and Transport Directorate General (www.europa.eu.int/comm/energy/en/elec_single_market/index_en.html).
18 – Two months from receipt of the reasoned opinion dated 13 June 2000.
19 – See Table 1 of the First benchmarking report (cited above, footnote 17).
20 – OJ 1998 L 204, p. 1.
21 – See the Opinion of Advocate General Stix-Hackl in Case C-259/01 Commission v France [2002] ECR I-11093, points 2 to 5.
22 – See the information in Table 1 of the First benchmarking report (cited above, footnote 17) as regards the opening of the French market (which has since been effected).
23 – However, it is not clear what is meant by fixed costs. For example, they could include not only the costs of constructing and operating the networks but also the costs of constructing and maintaining power stations.
24 – However, this price structure is not the only one possible. In principle, the distribution undertakings could abandon the standing charge and increase consumption charges accordingly. However, in that case their revenue would be subject to more severe fluctuations depending on consumption.
25 – OJ 1990 L 185, p. 16.
26 – Case C-481/98 Commission v France [2001] ECR I-3369, paragraphs 21 and 22. See also Case C-216/97 Gregg [1999] ECR I-4947, paragraph 20, Case C-381/97 Belgocodex [1998] ECR I-8153, paragraph 18, and Case C-283/95 Fischer [1998] ECR I-3369, paragraphs 21 and 27.
27 – Article 5(2) of the Sixth Directive provides that for the purposes of the directive electricity and gas are goods.
28 – Case C-481/98 Commission v France (cited above, footnote 26), paragraph 22.
ALBER
delivered on 10 October 2002 (1)
Case C-384/01
Commission of the European Communities
v
French Republic
((Failure by a Member State to fulfil its obligations – Sixth VAT Directive – Article 12(3)(a) and (b) – Supply of natural gas and electricity – Reduced tariff – Fixed charge for connection to the supply network (standing charge)))
I ─ Introduction 1. In 1998, the French Republic amended its domestic law relating to value added tax on supplies of electricity and natural gas. It applied a reduced rate of value added tax to the standing charge, that is the fixed price payable in respect of a defined period of time for connection to the relevant distribution networks and other fixed costs. The standard rate remained applicable to the rest of the consideration, which was calculated by reference to consumption. In the present infringement procedure, the Commission alleges in the first place that the French Republic did not inform it properly or completely of the amendment in advance, whereas the Sixth VAT Directive required it to do so. (2) In the second place, it is of the view that applying different rates of value added tax to the two parts of the supply is not compatible with the Directive. II ─ Legal framework 2. Article 12(3)(a) of the Sixth Directive (3) provides: The standard rate of value added tax shall be fixed by each Member State as a percentage of the taxable amount and shall be the same for the supply of goods and for the supply of services. ...Member States may also apply either one or two reduced rates. These rates shall be fixed as a percentage of the taxable amount which may not be less than 5% and shall apply only to supplies of the categories of goods and services specified in Annex H. 3. Article 12(3)(b) of the Sixth Directive (4) then provides:Member States may apply a reduced rate to supplies of natural gas and electricity provided that no risk of distortion of competition exists. A Member State intending to apply such a rate must, before doing so, inform the Commission. The Commission shall give a decision on the existence of a risk of distortion of competition. If the Commission has not taken that decision within three months of the receipt of the information a risk of distortion of competition is deemed not to exist. 4. Article 29 of the French Loi de finance (Finance Act) 98-1266 for 1999 (5) provides inter alia that a reduced rate of value added tax of 5.5% shall be applied to the standing charge for electricity and natural gas supplied by the public networks. By contrast, the other part of the consideration, which is calculated by reference to consumption, is subject to the standard rate as laid down by Article 278 of the Code général des impôts (General tax code), namely 19.6%. III ─ Facts and procedure 5. By letter dated 8 July 1998, the French Minister for the Economy, Finance and Industry notified the Commission that, pursuant to Article 12(3)(a) of the Sixth Directive, he intended to apply a reduced rate of tax to the standard charge for connection to the gas and electricity supply network ( l'abonnement aux réseaux de distribution de gaz et d'électricité ) in order to encourage demand and to increase the purchasing power of socially disadvantaged customers in particular. 6. The Commission understood this to be a notification under Article 12(3)(b) of the Sixth Directive and by letter dated 31 July 1998 requested the French authorities to provide more information about the conditions for the application of the measure. 7. By letter dated 7 September 1998, the Ministry replied that the standing charge was part of the consideration for the supply of gas and electricity. Since the reduction applied to all distributors in the same way, there was no risk of distortion of competition. 8. By a further letter dated 7 December 1998 the Commission expressed doubts as to France's argument, on the ground that the standing charge did not actually pay for any energy consumption, and required the French authorities to explain this point in more detail, which however they did not do. 9. The French Parliament enacted the relevant law on 30 December 1998. It was promulgated on 31 December 1998 and entered into force on 2 January 1999. (6) 10. On 22 October 1999 the Commission sent France a letter of formal notice pursuant to Article 226 EC. Not having received any reply thereto, on 13 June 2000 it sent a reasoned opinion to the French Republic. Since the French authorities' response of 7 August 2000 did not persuade the Commission, on 5 October 2001 it brought an action under Article 226 EC. 11. The Commission claims that the Court should: ─declare that, by applying a reduced rate of VAT to the fixed part of the prices for gas and electricity supplied by the public networks, the French Republic has failed to fulfil its obligations under Article 12(3)(a) and (b) 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; ─order the French Republic to pay the costs. 12. The French Republic contends that the Court should: ─dismiss the action; ─order the Commission to pay the costs. 13. There was no oral hearing. IV ─ Submissions of the parties A ─ The Commission 14. As appears from the reasons given in the application, the Commission alleges that the French Republic has infringed the Sixth Directive in two different ways. In the first place, it is of the view that France did not properly follow the notification procedure under Article 12(3)(b) of the Sixth Directive before introducing the reduced rate. In the second place, the Commission is of the view that the structure of the value added tax provisions is in substance incompatible with Article 12(3)(a) and (b) of the Sixth Directive. 15. In the Commission's opinion, its second request for information, dated 7 December 1998, interrupted for a second time the period laid down by the fourth sentence of Article 12(3)(b) of the Sixth Directive prior to its expiry. For that reason, France had not been entitled to assume that the Commission had tacitly approved the measure, and accordingly had not been entitled to implement it. 16. The second request for information had not been mala fide and had not been intended merely to delay the procedure. Rather, the Commission required further information in order to be able to assess the measure's effect on competition within the Community and to issue a reasoned decision which complied with the requirements of Article 253 EC. 17. The Commission founded its substantive complaint on alternative grounds. 18. If the standing charge were consideration for a service other than the supply of energy, Article 12(3)(b) of the Sixth Directive, which authorised a reduced rate of tax for the supply of energy, was not applicable. Nor did the present case come within any of the other categories to which Article 12(3)(a) of, in conjunction with Annex H to, the Sixth Directive authorised a reduced rate to be applied. 19. On the other hand, if the standing charge were to be regarded as part of the consideration for the supply of energy, the measure infringed the principle in Article 12(3)(a) of the Sixth Directive that a single rate of tax was to be applied to similar supplies. This principle was ultimately an aspect of the principle of fiscal neutrality. 20. The provisions resulted in different treatment for different categories of consumers. If a consumer chose a tariff with a higher standing charge but a lower charge for consumption, his effective tax rate would be lower than that under a tariff with a low standing charge but a high consumption charge. B ─ The French Government 21. The French Government submitted that its response to the Commission's first letter had given the Commission all the information it needed. No further information had been required to enable the Commission to construct its two alternative arguments for the proposition that the directive had been infringed. The proposition that the information had been sufficient to enable the Commission to commence an infringement procedure but not to enable it to make a decision under Article 12(3)(b) of the Sixth Directive was incomprehensible. 22. The French Government's failure to reply to the Commission's second (and in its view superfluous) request for information (dated 7 December 1998) did not infringe Article 12(3)(b) of the Sixth Directive. This request had not interrupted the period within which the Commission was entitled to object to the implementation of the reduced rate of tax. (7) It followed that the period had expired on 7 December 1998, three months after the receipt of the French Government's letter, and that the measure was therefore to be regarded as having been tacitly approved. 23. Purely in the alternative, the French Government rejected the complaint of a substantive infringement of the directive. It had always emphasised that the standing charge was consideration for the supply of natural gas and electricity and not for some other service. 24. Nor had it infringed the principle of a single tax rate for similar supplies. The supply of energy by public networks comprised various different supplies, and it was lawful to apply different rates of tax to each of them. First, a connection was made available to the customer who was thereby enabled to obtain gas or electricity, as the case might be. Secondly, a particular amount of energy was supplied and was charged for by reference to consumption. 25. The French Government submitted that the complaint of discrimination between different categories of consumers was inadmissible, since it did not appear in the reasoned opinion. Gaz de France (hereinafter GdF) and Électricité de France (hereinafter EdF) imposed a different standing charge according to consumption and voltage respectively and according to customer category (private customers, business customers, small industrial customers and industrial customers) as well as within customer categories depending on what tariff the customer chose. Therefore, the example the Commission portrayed could not prove there to have been discrimination. V ─ Analysis A ─ Infringement of the notification obligation 26. Article 12(3)(b) of the Sixth Directive authorises Member States to apply a reduced rate of value added tax to supplies of natural gas and electricity provided that no risk of distortion of competition exists. 27. Before applying any reduction, the Member State must inform the Commission. The Commission either gives an express decision or allows a period of three months to pass without giving a decision. In the latter case, a risk of distortion of competition is deemed not to exist. 28. Article 12(3)(b) of the Sixth Directive does not contain any more procedural rules. By contrast with the corresponding provision in relation to State aids, contained in the third sentence of Article 88(3) EC, the provision does not expressly prohibit applying the reduced rate prior to the Commission's decision or the expiry of the three month period. 29. However, an interpretation of the provision based on the principle of effet utile (the principle of effectiveness) would prohibit such application. If the Member State were permitted to apply the reduced rate of tax before the Commission gave its decision, by the time the Commission thereafter established that there was a risk of distortion of competition such distortion would already have occurred. Moreover, if the Commission objected, the national legislature would be required immediately to repeal the provision it had just enacted. Such amendments at short notice would cause unnecessary expense for both taxpayers and tax authorities, and would create significant legal uncertainty. 30. This interpretation is also supported by the fact that if the Commission fails to give its decision within three months of being notified, the measure is then deemed to be compatible with competition law. This fiction, or tacit approval by the Commission, ensures that the Commission cannot keep the Member State in a state of uncertainty as to its decision for too long a period. It is reasonable to expect the Member State to wait three months to apply the reduced rate, and in normal circumstances the assessment procedure cannot last any longer than that. 31. This is also supported by the fact that amendment of the value added tax rate for energy supplies is a political decision of broad-ranging effect owing to the large number of taxpayers it affects and its significant effects on the national budget. 32. It follows that it became lawful for the French Republic to apply the reduced rate of value added tax to supplies of natural gas and electricity pursuant to Article 12(3)(b) of the Sixth Directive only after either the Commission had established that doing so would not create a risk of distortion of competition, or the three month period following notification to the Commission had expired without the Commission's having given a decision. Since the Commission did not issue any decision, the amendment of the value added tax rate may be held to have been implemented without procedural irregularity only if the present case falls into the second category. 33. Therefore, it has to be established when the three-month period began and when it ended. 34. The Commission appears to have assumed that the period was commenced by the first notification but was interrupted and recommenced by its letters of 31 July and 7 December 1998 requesting information. Accordingly, the period had not expired when the Loi de finance entered into force. 35. The Sixth Directive does not contain any detailed provisions as to what information the Member State must supply in its notification and how the running of the assessment period is affected where the information is incomplete and the Commission is consequently required to obtain further information. It follows that guidelines need to be developed for the notification procedure under Article 12(3)(b), in the light of its wording and purpose. 36. These guidelines must take into account the principle that the Member States and the Community organs owe each other mutual duties of genuine cooperation, as is evinced in Article 10 EC. (8) A parallel may be drawn with the procedure for notifying State aids. The respective interests of the Member State and of the Commission in the two procedures are similar. As regards the notification required by State aid law, the courts, and subsequently the legislature, have specified the consequences that giving incomplete information has on the running of the assessment period. 37. Thus, even before Council Regulation (EC) No 659/1999 of 22 March 1999 laying down detailed rules for the application of Article 93 of the EC Treaty (9) (now Article 88 EC) (hereinafter Regulation No 659/1999) entered into force, it had already been recognised that the period established in Lorenz (10) for the commencement of formal proceedings was commenced only by a complete notification. (11) This condition was enacted in the second sentence of Article 4(5) of Regulation No 659/1999. 38. In addition, the third sentence of Article 4(5) of Regulation No 659/1999 provides that the notification will be considered as complete if, within two months from its receipt, the Commission does not request any further information. 39. Though developed in the context of State aid law, these principles may be transposed to the notification required by Article 12(3)(b) of the Sixth Directive. The three month period begins only once the Commission actually has all the information necessary to enable it to decide whether the intended introduction of a reduced rate of tax will create a risk of distortion of competition. 40. As Advocate General Jacobs rightly explained in his Opinion in Austria v Commission in the context of State aid law, by sending the Member State concerned a request for information the Commission implies that a notification is incomplete. (12) If the notification is truly incomplete (and this is a matter for the Court to determine), (13) then the period has not started to run and accordingly it is not broken by the request for information. Correspondingly, if the Commission does not request further information within the three month period, the notification under Article 12(3)(b) of the Sixth Directive is to be regarded as complete. 41. Therefore, the question as to whether the notification was complete, or could be held to be complete, with the consequence that the period began to run must be examined. 42. The French Government's first notification (dated 8 July 1998) did not constitute a complete notification. Only at the end of this letter, which primarily concerned other questions of value added tax law, did the French Government state briefly that it was going to apply a reduced rate of value added tax to the standing charge for gas and electricity supplies. This was intended to encourage demand and increase the purchasing power of domestic customers. 43. Moreover, the notification referred to Article 12(3)(a) of the Sixth Directive and not to Article 12(3)(b), which was the relevant provision. This error was clearly apt to cause misunderstandings. The Commission could have thought that the standing charge was to be regarded as consideration not for the supply of energy but for a supply falling within Article 12(3)(a) in conjunction with Annex H to the Sixth Directive. 44. The fact that on 31 July 1998 the Commission requested further information likewise means that the notification cannot be regarded as being complete. 45. On 7 September 1998 the French Government supplemented the information it had supplied. Thereafter, on 7 December 1998 the Commission sent another letter to the French Republic. The question is whether this letter is to be regarded as a request for further information. 46. On the one hand, the Commission states that the letter interrupted the period again. In other words, the Commission itself regards its letter as being in effect a request for information. On the other hand, however, the Commission did not ask any specific questions and did not ask for particular pieces of information, but simply expressed doubts that the standing charge could be regarded as consideration for the supply of energy, since it was not in itself related to any actual energy consumption. It also expressed its view that Article 12(3)(a) of the Sixth Directive would have to be taken into consideration. 47. It may be concluded from the judgment of the Court in Austria v Commission that a letter in which the Commission does not ask for specific explanations of an intention to grant aid cannot postpone the commencement of the period. (14) 48. In examining the letter it must also be remembered that the notification is required to contain principally factual information on the intended national measure and information on the conditions in the market for the supplies to which the reduced tax rate is to be applied. On the other hand, the Member State is not obliged to suggest how the measure should be classified in law, since it is for the Commission to assess the legal effect of the facts. 49. Therefore, the letter of 7 December 1998 is not to be regarded as a request for further information, since the Commission did not ask for information about the intended national measure or the facts of the case. Instead, the Commission asked the French Government to express its view as to classifying the standing charge in law as part of the consideration for the supply of energy. Nor was the reference to Article 12(3)(a) of the Sixth Directive aimed at eliciting further information: it merely reflected the Commission's legal analysis, and that in only the vaguest way. 50. It is certainly doubtful that the French Government had in fact already provided the Commission with all the information it needed in order to be able to assess the measure. Thus, for example, there was no information about the situation on the markets concerned. Nor was there any detailed information on the tariffs applicable in France for the provision of gas and electricity, for example as to what proportion of the aggregate price for the supply of energy consisted in the standing charge and what in the charge calculated by reference to consumption. 51. The French Government's argument that the information had to be regarded as sufficient for the purposes of the Sixth Directive since it was sufficient to enable the Commission to commence an infringement procedure is doubtful. The two procedures serve different purposes. Moreover, it may be that it is easier for the Commission to discharge its burden of proof in the infringement procedure where the Member State has not cooperated in establishing the facts. 52. Ultimately, the issue is not whether the information the French Government provided to the Commission was in fact sufficient to enable the assessment required by Article 12(3)(b) of the Sixth Directive. For the Commission did not ask the French Government any specific questions indicating that it required further information on the facts and therefore regarded the notification as being incomplete. The principle of genuine cooperation would have required the Commission to do this. 53. In itself, the fact that the Commission asserted in its letter that the letter interrupted the period cannot alter this assessment. The rule that after three months the measure is deemed not to distort competition would be completely undermined if the Commission were thus able to influence when the assessment period started. That would defeat the purpose of this provision, namely to ensure that the Member States are not in a state of uncertainty as to the assessment of the intended measure for too long. 54. It follows that the French Government's notification must be regarded as being complete once it sent its letter of 7 September 1998 supplementing the information it had already supplied. Three months after that letter had been received by the Commission, it was deemed that no risk of distortion of competition existed. 55. Thereafter, the French Government was entitled to apply the reduced tax rate to the supply of energy. It did not infringe the notification obligation laid down by Article 12(3)(b) of the Sixth Directive. B ─ Infringement of the substantive requirements of Article 12(3)(a) and (b) of the Sixth Directive 1. Dismissibility of alternative grounds 56. The Commission bases its substantive complaint on alternative grounds. The first ground is that Article 12(3)(a) of in conjunction with Annex H to the Sixth Directive (or indeed with any other of the Directive's provisions) does not authorise the application of a reduced rate of tax to the standing charge for the provision of natural gas and electricity which is to be distinguished from the charge for the actual supply of energy. 57. The second ground is that the principle of a single tax rate has been infringed. Even though the Commission derives this principle likewise from Article 12(3)(a) of the Sixth Directive, the second complaint is none the less of a completely different infringement. 58. The Commission submits that which of the two alternatives is actually the relevant one depends on the prior question as to whether the standing charge is to be classified as part of the consideration for the supply of energy or as consideration for a separate supply. In the preliminary proceedings the French Government gave reasons for its view that the standing charge was to be classified as part of the consideration for the supply of energy, but in its application the Commission did not address those reasons and continued to insist on both alternatives. It was only in its response that the Commission eventually took the view that providing the network was a separate supply and not part of the supply of energy. 59. The question is whether a complaint of a failure to fulfil obligations in this form is sufficiently precise and does not infringe the French Republic's defence rights. Although the French Government did not raise any objection on this basis, it would be open to the Court to consider the question of its own motion, given that it is one of admissibility. 60. The Commission did not give express primacy to either of the two alternatives. However, reading its submissions as a whole, it appears that its principal proposition is that providing the network is not to be regarded as the supply of gas and electricity. It follows that the question whether there is an infringement of the principle of a single tax rate arises only if the Court decides that providing the energy supply network is not to be regarded as a separate supply but as part of the supply of energy. Thus, the second alternative may be regarded as subsidiary. 61. It is permissible to put forward a principal and a subsidiary basis for the proposition that there has been a failure to fulfil obligations. On that basis, the Commission's complaint is sufficiently clear. It follows that the French Government's defence rights have not been curtailed. 2. Admissibility of the substantive complaints 62. Under Article 12(3)(b) of the Sixth Directive no risk of distortion of competition is deemed to exist, given that the three-month period has expired without the Commission's having expressed its opinion as to whether there is a risk of distortion of competition. The French Government submits that because the three-month period has expired and the Commission is therefore deemed to have given the measure its tacit approval, the Commission is precluded from objecting to the measure by an infringement procedure. 63. This view cannot be accepted. However, in rejecting it, it is unnecessary to decide whether the expiry of the period gives rise to a legal fiction or, as the French Government submits, the Commission's silence is deemed to constitute tacit approval. 64. The fiction or the tacit approval (as the case may be) relates only to the risk of distortion of competition. It does not encompass the other requirements of Article 12(3)(b), or indeed of any of the other provisions of the Sixth Directive. Thus, for example, even though the Commission has not given its final decision three months after the notification, the supply to which a reduced rate of tax is to be applied cannot be deemed to be a supply of natural gas and electricity. Therefore, the Commission's principal complaint, namely that the French Government was wrong to classify the supply as the supply of energy, and that therefore Article 12(3)(b) of the Sixth Directive could not provide the basis for applying a reduced rate of tax, is in any case admissible. 65. In the present proceedings, the Commission is also entitled to rely on its subsidiary complaint, namely an infringement of the principle of a single tax rate. Admittedly, there is a certain link between the possible infringement of this principle and the measure's effect on competition, as will be explained below. (15) However, in this connection the Commission's main point is that Article 12(3)(a) of the Sixth Directive has been infringed. That being so, the extent to which the Commission is bound by its assessment of the risk of distortion of competition is to be taken into account in considering the substantive issue, since that assessment is the basis for the Commission's tacit approval or, as the case may be, the legal fiction that the measure is compatible with competition law. 66. Finally, account must be taken of the fact that in its letters of 31 July and 7 December 1998 the Commission expressed its doubts as to classifying the standing charge in law as consideration for the supply of natural gas and electricity. In addition, in its letter of 7 December 1998 it expressed doubt as regards Article 12(3)(a) of the Sixth Directive. Even if the Commission thus failed to express its view as to distortion of competition within the time-limit, raising the present complaints in the infringement procedure does not amount to inconsistency on its part. 3. The principal complaint: classifying the provision of an energy supply network as a specific supply 67. The Commission's principal complaint can succeed only if the standing charge is to be classified as part of the consideration not for the supply of natural gas and electricity but for a specific supply. The third subparagraph of Article 12(3)(a) of the Sixth Directive provides that a reduced rate may apply only to supplies of the categories of goods and services specified in Annex H. Since neither the connection to the energy supply network nor the provision of the corresponding distribution network falls within any of the categories in Annex H, it would not be lawful to apply the reduced rate in the present case. 68. It is first to be observed that in its application to the Court the Commission did not provide any further reasons for its proposition that the connection was a specific supply, even though the French Government had expressly rejected this view in its letter of 7 September 1998. 69. Only in its reply did the Commission state that the term supply in Article 12(3)(b) of the Sixth Directive could not include the connection. Instead, the facility which the connection created to obtain energy supplies was a separate supply, preliminary to the supply of energy. 70. If it were to be held that the Commission's complaint is wrong in substance, it would be unnecessary to decide whether this rather superficial reason, which was not given until the reply, was sufficient to fulfil the Commission's disclosure obligation in an infringement procedure. 71. The connection may be regarded as a specific supply only if it is a supply which is necessarily to be separated from the actual supply of natural gas and electricity. In this regard, two factors are to be taken into account. First, if it were possible to obtain a connection other than as part of a package including the supply of natural gas or electricity in the narrow sense, this would support the proposition that the supplies were separate. For such a possibility to exist, it would have to be possible to obtain natural gas and electricity from a different supplier. In that case, the connection would be nothing more than the use of the distribution network. Second, the price for the connection would have to be related to certain fixed costs, for example the costs of operating the network. 72. The legal framework of the markets concerned is important in deciding whether the connection and the operation of the network are to be separated from the supply of specific amounts of energy. 73. Relevant to the electricity sector is Directive 96/92/EC of the European Parliament and of the Council of 19 December 1996 concerning common rules for the internal market in electricity, (16) which was required to be transposed not later than 19 February 1999. Article 19 of this directive provides for a progressive opening of the market, although initially only large consumers are to be permitted to choose their supplier. 74. According to the Commission's First benchmarking report on the implementation of the internal electricity and gas market of 3 December 2001, (17) at that time, long after the expiry of the period commenced by the reasoned opinion, (18) only 30% of the French market had been opened: only final consumers consuming more than 16 GWh per year could choose their supplier. (19) At the relevant time, domestic customers (the principal category of persons affected by the provision concerning the tax on the standing charge) could obtain electricity only from the existing monopoly supplier, EdF, who also provided their connection. 75. Provisions for opening the gas supply market are contained in Directive 98/30/EC of the European Parliament and of the Council of 22 June 1998 concerning common rules for the internal market in natural gas. (20) This Directive was required to be transposed into national law not later than 10 August 2000, but France did not transpose it within that time-limit. (21) Moreover, in this sector too, initially only large consumers are given the right to choose their supplier. (22) 76. It appears therefore that, at the relevant time, private customers and also many business customers could obtain electricity and gas only from EdF and GdF respectively, who also provided the connection. This suggests that the connection is not to be classified as a separate supply. 77. The second factor also suggests that the supply is indivisible. It is not apparent that the standing charge is in fact directly related to specific fixed costs. Admittedly, the connection tariffs vary depending on the amount of gas consumed or the voltage, as the case may be, as well as on the customer category, so that one could take the view that there is a link between how much the infrastructure is used and the amount of the standing charge. However, in its letter of 7 September 1998 to the Commission, the French Government stated that the revenue from the standing charge was only about 27% of the total costs of the distribution undertaking, whereas the fixed costs (23) were in fact over half those costs. In other words, part of the fixed costs was covered by the revenue from the charges calculated by reference to consumption. 78. In the present case, dividing the consideration for the supply of natural gas and electricity into a fixed and a variable part constitutes the exercise of the distribution undertakings' freedom to fix prices for an integrated supply. (24) It is not the case that the two charges are for two separate supplies. 79. Council Directive 90/377/EEC of 29 June 1990 concerning a Community procedure to improve the transparency of gas and electricity prices charged to industrial end-users also supports this view. (25) Annex I, point 9 (concerning gas) and Annex II, point 8 (concerning electricity) provide that a unitary price is to be calculated taking into account the fixed charge and the charge calculated by reference to consumption. 80. It follows that the proposition that the connection does not constitute the supply of natural gas and electricity within the meaning of Article 12(3)(b) of the Sixth Directive is not correct, and accordingly that the introduction of a reduced rate of value added tax pursuant to that provision cannot be precluded on that ground. Therefore, the Commission's principal complaint is to be rejected. 81. However, this decision applies only as of the point in time relevant for the purposes of the present infringement procedure, namely the expiry of the period set in motion by the reasoned opinion. It is possible that the situation has since changed as the market has been progressively opened. 4. The subsidiary complaint: infringement of the principle of a single tax rate 82. In case the connection were to be regarded as the supply of natural gas and electricity, the Commission alleges an infringement of the principle that similar supplies are to be subject to the same rate of value added tax. 83. It deduces this principle from Article 12(3)(a) of the Sixth Directive, which provides that, [t]he standard rate of value added tax shall be fixed by each Member State as a percentage of the taxable amount and shall be the same for the supply of goods and for the supply of services .... The Commission submits that this inherent principle of value added tax is intended to prohibit any discrimination between persons who obtain the same goods or services. 84. However, this principle is not apparent from the provision's wording. What the provision in fact states is simply that the standard rate is to be the same for services and goods. It does not appear from this provision that the same rate of tax is to be applied to similar services and similar goods. 85. None the less, the principle the Commission relies on is an aspect of the principle of fiscal neutrality, which is recognised as a fundamental principle of the Community system of value added tax. Thus, in its judgment in Commission v France the Court stated: It follows that the introduction and maintenance of a rate of 2.1% for reimbursable medicinal products, whereas the supply of non-reimbursable medicinal products is subject to a rate of 5.5%, are permissible only in so far as they are consistent with the principle of fiscal neutrality inherent in the common system of VAT and in compliance with which the Member States are required to transpose the Sixth Directive ...That principle in particular precludes treating similar goods, which are thus in competition with each other, differently for VAT purposes ... The principle of fiscal neutrality for that reason also includes the other two principles ... of VAT uniformity and of elimination of distortion in competition. (26) 86. The question is whether the Commission's complaint is to be rejected on the ground that it invokes Article 12(3)(a) of the Sixth Directive and not the general principle of fiscal neutrality. 87. Against such rejection is first the fact that the principle on which the Commission expressly relies, namely the principle of a single rate of tax, is ultimately an aspect of the principle of fiscal neutrality. Second, the Commission's description in its letter of formal notice of the substance of the principle concerned was sufficiently clear for the French Government to be able to provide any justification for the infringement the Commission was actually complaining about. It follows that the Commission's wrong reference to Article 12(3)(a) of the Sixth Directive as being the basis of the principle of a single tax rate does not require the complaint to be dismissed. 88. The principle of fiscal neutrality would be infringed if the consequence of the French tax provisions were that similar supplies which were in competition with each other were treated differently for value added tax purposes. 89. As explained above, for the vast majority of final consumers, the connection and the supply of natural gas or electricity, as the case may be, are not distinct supplies but an integrated supply consisting partly in services and partly in goods. (27) The only thing divided into two parts is the price for the supply, those parts being the standing charge and the charge calculated by reference to consumption. 90. The consequence of applying different rates of value added tax to the two parts of the consideration is that the supply as a whole is in fact subject to a rate of value added tax which depends on the average of the rates of value added tax weighted according to the different parts of the price. The supply of natural gas and electricity is thus subject to many different rates of tax whose amount depends on what proportion of the aggregate price consists in the standing charge and what in the charge calculated by reference to consumption. 91. This constitutes an infringement of Article 12(3)(a) of the Sixth Directive since that provision authorises the application of at most two reduced rates in addition to the standard rate. However, since the Commission has not founded its complaint on this infringement, it cannot be relied on in the present proceedings. 92. However, this tax provision could at the same time infringe the principle of fiscal neutrality, in that different rates of tax are applied to similar supplies. 93. The French Government's observation that the standing charge varies according to what is supplied and to the customer category does not change this analysis. Admittedly, it might for example be that there is a difference between low and average voltage supplies of electricity constituting different supplies. However, there would still be different effective rates of value added tax within the same voltage band depending on how much electricity has actually been used and consequently what proportion of the consideration is subject to the standard rate of value added tax. 94. However, as the Court has said, the principle of fiscal neutrality is intended also to preclude treating similar goods, which are thus in competition with each other, differently for VAT purposes. (28) To be precise, the point is to prevent distortion of competition between the suppliers of the goods concerned. 95. It may be that at the point in time relevant for the present decision EdF and GdF offered a number of different tariff structures in France. It may be that the tax provisions accordingly had different effects for different categories of customer. However, the Commission made no submission as to the extent to which there was any competition on the French markets for the supply of natural gas and electricity or as to the extent to which the tax provisions thus created a risk of distortion of competition between the different market participants. 96. The Commission has thus failed to prove one of the necessary conditions of an infringement of the principle of fiscal neutrality. Therefore, this complaint too is unfounded. VI ─ Costs 97. The decision as regards costs depends on Article 69 of the Rules of Procedure, paragraph 2 of which provides that the unsuccessful party is to be ordered to pay the costs if they have been applied for. Since the French Republic made such an application, and the action has been unsuccessful, the Commission is to be ordered to pay the costs. VII ─ Conclusion 98. On the basis of the foregoing considerations, it is submitted that the Court should: (1) dismiss the action; (2) order the Commission to pay the costs.
1 – Original language: German.
2 – 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 (OJ 1977 L 145, p. 1) (hereinafter the Sixth Directive).
3 – As amended by Council Directive 96/95/EC of 20 December 1996 amending, with regard to the level of the standard rate of value added tax, Directive 77/388/EEC on the common system of value added tax (OJ 1996 L 338, p. 89).
4 – As amended by Council Directive 92/77/EEC of 19 October 1992 supplementing the common system of value added tax and amending Directive 77/388/EEC (approximation of VAT rates) (OJ 1997 L 316, p. 1).
5 – . Journal officiel de la République française of 31 July 1998, p. 20050.
6 – See Article 2 of the Decree of 5 November 1870 relating to the promulgation of laws and decrees.
7 – On this point, the French Government referred to Case C-99/98 Austria v Commission [2001] ECR I-1101.
8 – The Court has consistently emphasised the importance of this principle in its case-law concerning Member States' difficulties in implementing Commission decisions on State aids. See Case 94/87 Commission v Germany [1989] ECR 175, paragraph 9, Case C-378/98 Commission v Belgium [2001] ECR I-5107, paragraph 31, and Case C-499/99 Commission v Spain [2002] ECR I-6031, paragraph 24.
9 – OJ 1999 L 83, p. 1.
10 – Case 120/73 [1973] ECR 1471.
11 – . Austria v Commission (cited above, footnote 7), paragraph 56. See also the Opinion of Advocate General Jacobs in that case, points 70 to 81.
12 – Cited above, footnote 11, point 98.
13 – For example, in Austria v Commission (cited above, footnote 7), paragraphs 60 ff., the Court considered when the Member State had provided the necessary information and when the period for commencing the formal procedure therefore began to run.
14 – Cited above, footnote 7, paragraph 65. However, the Court also held in this judgment that the Commission already had all the necessary information, whereas this is doubtful in the present case (see below, paragraph 50).
15 – See below, points 94 f.
16 – OJ 1997 L 27, p. 20.
17 – Commission Staff Working Paper SEC(2001)1957, available on the Commission's home page, Energy and Transport Directorate General (www.europa.eu.int/comm/energy/en/elec_single_market/index_en.html).
18 – Two months from receipt of the reasoned opinion dated 13 June 2000.
19 – See Table 1 of the First benchmarking report (cited above, footnote 17).
20 – OJ 1998 L 204, p. 1.
21 – See the Opinion of Advocate General Stix-Hackl in Case C-259/01 Commission v France [2002] ECR I-11093, points 2 to 5.
22 – See the information in Table 1 of the First benchmarking report (cited above, footnote 17) as regards the opening of the French market (which has since been effected).
23 – However, it is not clear what is meant by fixed costs. For example, they could include not only the costs of constructing and operating the networks but also the costs of constructing and maintaining power stations.
24 – However, this price structure is not the only one possible. In principle, the distribution undertakings could abandon the standing charge and increase consumption charges accordingly. However, in that case their revenue would be subject to more severe fluctuations depending on consumption.
25 – OJ 1990 L 185, p. 16.
26 – Case C-481/98 Commission v France [2001] ECR I-3369, paragraphs 21 and 22. See also Case C-216/97 Gregg [1999] ECR I-4947, paragraph 20, Case C-381/97 Belgocodex [1998] ECR I-8153, paragraph 18, and Case C-283/95 Fischer [1998] ECR I-3369, paragraphs 21 and 27.
27 – Article 5(2) of the Sixth Directive provides that for the purposes of the directive electricity and gas are goods.
28 – Case C-481/98 Commission v France (cited above, footnote 26), paragraph 22.