Staatssecretaris van Financiën v Hong-Kong Trade Development Council (89/81)

B —Second question

Having replied to the first question in the negative, the Netherlands Government considers “that there is no reason to answer the second question”.The respondent in the main proceedings is of the opinion in the first place that this question should be examined not only in relation to the wording of Article 11 of the Second Directive — in which case the answer “is so simple that it must be admitted that it is not the one which the Hoge Raad seeks” — but also “in conjunction” with the Netherlands Law on turnover tax.In fact, the question for which an answer is actually sought is “whether the Netherlands tax administration may rely upon the Second Directive where the latter provides, as in the case in point, for a right to deduct which is more restrictive than that provided for by the Netherlands Law or 1968 on turnover tax”.It is a question of determining whether — in the same way as private individuals may in certain cases avail themselves in legal proceedings of the provisions of directives — national authorities also have “that right where a directive confers upon them a right which is more extensive than that provided under their own legislation”.In this case, the relevant provision of the Netherlands Law, Article 15, did not exclude “deduction of the input tax paid in respect of services provided for the carrying out of nontaxable transactions”. Thus, it appears from that provision that the Netherlands legislature as not complied with the obligation laid down in the first sentence of Article 11 (2) of the Second Directive.For this type of dispute, a specific procedure is laid down in Articles 169 and 170 of the Treaty Rome; it would therefore “not be correct” to seek to achieve the same object by the indirect means of Article 177.Moreover, the interests of the Netherlands Government are not harmed since the government itself is the author of its own law. And if it did regard its interests as being harmed, all it would need to do would be to change the law.Finally, the case-law of the Court shows that it has relied on equitable grounds to support the direct effect of directives. In particular it is clear from the judgment of 6 October 1970 (Case 9/70 Franz Grad [1970] ECR 825), in particular paragraph 5 of the decision, that the Court has expressed “the. idea of protection of the individual”. It is recognized, as a matter of legal theory, that directives may not impose obligations on individuals but may only confer rights on them”.In consequence, the respondent in the main proceedings takes the view that “the Netherlands authorities are not entitled to limit the right to deduct the input tax paid in respect of nontaxable transactions in reliance on the Second Directive”.The Commission considers that, in so far as it may be necessary to reply to the second question, the appropriate view is that “Article 11 (2), first sentence, manifestly prevents deduction of the turnover tax on goods and services used for the provision of services by the Hong Kong Trade Development Council”, since by virtue of Article 2 only services provided against payment are subject to value added tax (see paragraph 12 of the decision of 5 February 1981, judgment cited above) and that there may therefore be no deduction of value added tax levied on the value of goods and services used for the provision of goods and services free of charge, on the ground that the transaction is not taxable.The Commission further adds that, as far as the respondent in the main proceedings is concerned, whether or not it is regarded as a taxable person, the result is the same with regard to the deduction of value added tax paid in respect of inputs — no such deduction is possible.In consequence, the Commission proposes that the following answer should be given to the second question:“The first paragraph of Article 11 (2) of the Second Directive prevents the deduction of turnover tax levied on goods and services used for the provision of services free of charge”.