Ketelhandel P. van Paassen BV v Staatssecretaris van Financiën / Inspecteur der Invoerrechten en Accijnzen ; Minister van Financiën v Denkavit Dienstbetoon BV (C-181/78, C-229/78)
law://eu/cjeu/1978/c-181-78/hd_1_1_2_2@2026-11-14law://eu/cjeu/1978/c-181-78/hd_1_1_2_2@2026-11-14The Companies rely on the theory of the direct effect of directives in order to answer this question.After recalling the principles developed by the Court in the course of its case-law (Case 34/73 Variola [1973] ECR 981; Case 9/70 Franz Grad [1970] ECR 825; Case 41/74 Yvonne Van Duyn [1974] ECR 1337; Case 51/76 VNO [1977] ECR 113; and Case 38/77 Enka [1977] ECR 2203, cited above) they apply them to the Second Directive, and conclude that the national court must establish whether the national measure in question exceeds the Member States' margin of discretion. Finally, they recall that in Case 111/75 (Mazzalai [1976] ECR 657) Mr Advocate General Reischl stressed that ‘the value-added tax Directive … is intended to bring about the widest possible harmonization of the law on value-added tax. It is therefore to be assumed that the Directive uses the most precise concepts possible and is designed to be as complete as possible’; and that the Court of Justice held in Case 51/76 (VNO, cited above) that the interpretation, in general terms, of an expression appearing in the VAT Directive could not be left to the discretion of each Member State.Consequently, the concept of an ‘undertaking’ must be interpreted strictly according to the provisions of the Directive, and since — as was shown in the answer to Question 1 — the special system in Point 2 ‘Regarding Article 4’ of Annex A was not adopted, the principle of the single entity for tax purposes cannot be applied. All the more so as that principle deprives undertakings of the power to deduct input tax for which provision is made in Article 11 of the Directive and is one of the essential components of the VAT system.Therefore the Companies conclude that the provisions of the Directive, which have direct effect, give the taxable person the right to deduct input tax in respect of his purchases. That right can be restricted only when, in accordance with Point 2 ‘Regarding Article 4’ of Annex A to the Directive, the Member State has adopted special rules in that connexion for the single entity for tax purposes. As those special rules have not been adopted — if Question 1 is answered in the negative — there is. nothing to prevent the exercise of the right to deduct input tax in respect of transactions with linked undertakings, and the national court is obliged to protect the rights which individuals derive from the provisions of that Directive. Therefore the answer should be the following:‘It follows from the binding legal nature of the Second VAT Directive and the direct effect of the relevant provisions of that directive that persons who are linked to one another by economic, financial or organizational relationships must — in the absence of a system such as that referred to in Point 2 “Regarding Article 4” of Annex A — be regarded as separate taxable persons within the meaning of Article 4 and the national courts are not at liberty to interpret the concept of an undertaking in any other manner’.The Commission merely states that, as follows from its observations on Question 1, Article 4 of the Second Council Directive of 11 April 1967, interpreted in the light of Point 2 of Annex A thereto, allows the principle of the single entity for tax purposes to be used in the field of turnover taxes; and it proposes that this question should be answered as follows:‘The Netherlands courts may interpret the concept of an undertaking in the manner indicated in Question 1 as intended by the national legislature, since that concept is not contrary to the provisions of the Second Council Directive of 11 April 1967 concerning VAT’.
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